Low interest payday loans are short term loans for small amounts (usually US$200-$400) that are meant to help the borrower cover his or her expenses until the next payday. The term “cash advances” also sometimes refers to payday loans, although there are cash advances that can be made against a credit card or other line of credit.
Depending on the country, and in the U.S., depending on the state, the rules for payday lenders differ.
Payday lenders offer people with questionable, poor, or no credit a means for having some cash flow between paychecks. Many such lenders have sprung up online in recent years, billing their services as “no fax loans” that can be approved very quickly – often in minutes to hours. Online cheap payday loans are distributed either by wire (Western Union) or by Automated Clearing House (ACH) network, which is a nationwide electronic funds transfer system in the U.S. The funds may be deposited in the applicant’s bank account on the same business day, depending on the time the loan was approved. However, different banks may have different rules about how quickly they allow access to deposits, so there could be a delay in actually accessing the money.
In the U.S., the requirements for receiving a low interest payday loan are fairly relaxed. A borrower must have verifiable income for at least one month, which could be their job, disability income, alimony, child support, or Social Security benefits. Their net take home pay must be at least $1,000 per month. The applicant must be at least 18 years old with no more than two outstanding loans with other companies, and they must have a checking account with a positive balance and no outstanding bounced checks.
Low interest payday loans work by depositing money into the borrower’s bank account. The loan is due on the borrower’s next payday. At that time, the borrower can either pay off the full amount of the cash advance loan, or an amount greater than or equal to the minimum required payment. For internet payday lenders, payments are made online. Funds are automatically withdrawn from the borrower’s account on the due date.
Cash advance fees in the U.S. are around 25% of the amount of the loan. In other words, if you borrow $100, the fee is $25, or if you borrow $200, the fee is $50. Theoretically, these low interest payday loans should be paid back as quickly as possible and not used for long periods. But some borrowers are allowed to make a partial payment of some minimum amount on the due date, with the 25% fee added to the amount left over after that payment. Therefore, if your minimum payment on your $100 loan is $25, you pay that, and the 25% fee is added to the amount left. Since you owe $125 on your loan of $100, you’ll once again owe $125 until the next payday. At that point, the $100 loan will require repayment of $150 to pay the loan off.
Borrowers can compare online low interest payday loans because the lenders are legally obligated to disclose the loan’s cost before the contract is completed. A fee of $15 for every $100 borrowed is t ypical with low interest payday loans. Faster service may cost more. Those payday loan companies that have stricter applications processes will typically charge less, while those with the loosest requirements will charge more. If the loan is paid back on time, the fee is often less than you would pay as a “non-sufficient funds” (NSF, or bounced check) fee at your bank.
There are a number of things potential borrowers can do to keep the cost of low interest payday loans under control. One strategy is to borrow no more than you actually need, even if you are approved for more. The less you borrow, the faster you can pay off your loan. Fees vary among cheap payday loans, so it is a good idea to compare lenders. Payday lenders must by law post their fees and rates, and you can compare a number of them online before deciding on a lender. It is important that when comparing low interest payday loans t hat you compare both flat financing fees and interest rates. You will have to add these amounts to get the true cost of the loan, and this is very important if you elect to “roll over” your loan until another payday.
Paying back your loan as quickly as possible is the best way to keep costs low on low interest payday loans. If possible, pay it back in full on your next payday. Check with your lender to see if there is any advantage to paying back the loan even earlier, if your cash flow situation improves. However, be aware that some low interest payday loans won’t take the payment out of your bank account early, but will wait until your actual payday. Most payday loan companies will automatically deduct only the minimum finance payment from your checking account, which will, of course, prolong the term of the loan. You will spend less in fees and interest if you pay back the loan in full as soon as you are able.
It is also crucial that you never skip a payment on low interest payday loans. If you do, you will incur late fees by the lender, and you could end up being charged NSF fees by your bank if your account is overdrawn. Instead, talk with the payday lender to discuss your repayment options. Even if you have to extend the loan, it can cost less to do this than to pay late fees to both your lender and your bank.
In the U.S., payday loan laws vary by states. Some states have a very “hands-off” approach to regulating low interest payday loans. New Hampshire is one of these. Payday lenders can legally operate and charge any interest rate or fees that the borrower agrees to. There is no cap on interest rates, but lenders must comply with the state’s small loan act.
On the other hand, in the state of Georgia, the laws on payday lending are much stricter, at least at first glance. Loans of $3,000 or less that violate state usury laws are illegal. Payday lenders in Georgia cannot loan less than $3,000 for more than a 16% APR. But even there, state chartered banks that operate under the laws of another state and that are FDIC insured that isn’t violating federal laws and state laws in the state where the bank is chartered are not limited by Georgia’s 16% rate cap.
Payday loans are intended for use in emergencies only. Unfortunately, some people end up relying on low interest payday loans as an alternative to income and end up in much deeper debt than they expected. There’s really only one way to get out of a downward spiral of debt, and that is to stop borrowing and start paying more than the minimum on your loan obligations. Most people will have to cut their expenses sometimes drastically to be able to do this, but there is really no other way. That’s why it is extremely important that people who are looking at low interest payday loans should compare fees and interest rates, never borrow more than they actually need, and pay the loan off in full as soon as possible.
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