Millions of people use low interest payday loans to bridge the gap between paychecks when sudden expenses crop up. These loans are usually for small amounts of money ($300 or so), and they are meant to help the borrower meet expenses until his or her next paycheck. These cheap payday loans are sometimes referred to as cash advances, though there are many other types of cash advances from banks, and against credit cards or lines of credit. Rules for low interest payday loans differ by state and by country.
No fax loans
People with poor credit history or with no credit history are able to use low interest payday loans to help their cash flow between paychecks. Numerous offers of cheap payday loans can be found on the internet. They often advertise their services as “no fax loans,” which is code for loans that can be approved very quickly, sometimes in a matter of minutes. Cheap payday loans offered over the internet are distributed by Western Union, or by the Automated Clearing House (ACH) network.
The ACH network is a nationwide fund transfer system in America that transfers money electronically. The funds may be placed in the loan applicant’s bank account on the same business day if the application is completed early in the day. Different banks, however, have different policies about allowing customers access to deposits, so there is no guarantee the money will be available the same day or sometimes even the next day. Anybody using an ACH transfer to their bank account should ask their bank about access policies first so there will be no misunderstanding about it.
Payday loan requirements
Anyone who wants to receive a low interest payday loan must meet certain requirements. In the U.S., the borrower must have a verifiable source of income for at least one month. This source of income could be a job, alimony, child support, disability income, or Social Security payments. They must have a net take-home pay of at least $1,000 per month, and they have to be at least 18 years old. Applicants must have no more than two outstanding loans with other payday loan companies, and they must also have a checking account with no bounced checks outstanding, and a positive balance.
Cheap payday loans result in money being deposited into the borrower’s bank account. The loan comes due at the borrower’s next payday. On that day, the borrower can choose to pay off the full amount of the loan, or some amount at least equal to the minimum payment required. With internet lenders, the payments are made online, transferred automatically from the borrower’s bank account on the date the loan is due.
Payday loan fees
Fees for low interest payday loans are typically around 25% of the loan amount. If someone borrows $300, the fee will be $75, in other words. In theory, if these loans are paid back as soon as possible and are not depended upon for long time periods, they can be a viable way to make it from one paycheck to the next when there are unexpected expenses.
In some cases, however, borrowers may make a partial payment on the due date, with the fee added to the amount that is still owed. If, for example, the borrower pays a minimum $75 fee on a $300 loan, the 25% fee is added to the outstanding balance of the loan. Since the borrower will once again owe $375 until the next payday, after the second lending period, the $300 loan will have cost $450 to pay off. The borrowing fees continue to mount for as long as the borrower stretches out the term of the loan.
With online cheap payday loans, borrowers can more easily compare interest rates. That’s because online payday lenders are legally required to disclose the costs of the loan before the contract is signed. With cheap payday loans over the internet, the fee is usually around $15 for every $100 borrowed. There may be a fee for expedited service, however. One rule of thumb for low interest payday loans is that the more strict the application process, the lower the fees will be. Conversely, the payday lenders with the most lax requirements will charge more because they have more risk to cover. It is important to note that, depending on the borrower’s bank, the fee charged by a payday lender may be less than the bank would charge as a bounced check fee, making the payday loan more prudent, assuming it is paid back in full at the first payment.
Borrowers do have many ways to keep the costs of cheap payday loans from spiraling out of control. The main one is to borrow no more than is actually necessary, even if the payday lender approves a higher amount of money. The less money borrowed, the faster the loan can be paid off, and the lower the fees assessed.
Because fees vary among low interest payday loan providers, comparing rates among several is worthwhile to get the lowest fee. Payday lenders are required to post their fees and their rates, and comparing them online is quick and easy.
The borrower should compare both interest rates and flat financing fees. These amounts will have to be added together to get the real cost of the loan, and it is very important to scope out if there is a chance the borrower will have to roll the loan over until another payday.
The quicker the borrower pays back a loan, the lower the overall costs will be. If at all possible, it is best to pay low interest payday loans back in full at the first opportunity. It is worth checking as to whether there is an advantage to paying back the loan even before the due date. The borrower should also be aware that with some low interest payday loans, the lender will not take the payment from the borrower’s bank account early, but will wait until the actual payday. Most cheap payday loan companies automatically deduct only the minimum payment from the account, prolonging the loan term. Paying back the loan in full on time is by far the least expensive way to deal with a payday loan.
Borrowers should also know that skipping a payment on a low interest payday loan will cause the lender to add late fees. On top of that, the borrower could be charged bounced check fees from their bank if the account is overdrawn. Borrowers should know in detail the specific repayment options available. Extending the loan can in some cases cost less than the costs of late fees and overdraft bank fees. Payday lenders are allowed to use only standard collection practices used in the credit industry to collect debts. In many places, they cannot threaten delinquent borrowers with check fraud, and can be prosecuted criminally for doing so.
Payday loans Georgia
The laws for low interest payday loans vary by state in the U.S. Some states have very loose regulation of these loans, while others have tighter regulations. In the state of Georgia, the laws on low interest payday loans are fairly strict. Loans of up to $3,000 that violate Georgia’s usury laws are not legal, and payday lenders there cannot loan less than $3,000 at more than a 16% annual percentage rate. However, state chartered banks with FDIC insurance and operating under the laws of another state with looser laws are not limited by the 16% APR rate cap in Georgia.
Payday loans New Hampshire
One of the most loosely regulated states for low interest payday loans is New Hampshire. There, payday lenders can charge any fee or interest rate that the borrower agrees to as long as the payday lender complies with New Hampshire’s small loan act.
Payday loans Texas
In Texas, there are some restrictions on low interest payday loans, but in that state, most payday loan companies operate as “consumer service organizations” rather than lending institutions and are able to get around state licensing and regulation requirements. Though bills have been proposed in Texas to close this loophole, they have never been passed or signed into law.
Payday loans Arkansas
The state of Arkansas passed a law in 2008 designed to shut down payday lenders. However, many of them simply reinvented themselves as paid tax preparers offering advance loans on IRS refunds, and continued to charge extremely high interest rates.
Payday loans Washington
In 2010, Washington state laws went into effect requiring purveyors of low interest payday loans to provide payment plans rather than requiring lump sum payments. The law also limits the amount of money someone can borrow and the number of payday loans a person can take out in one year.
The U.S. Congress passed a law that went into effect October 1, 2007 capping payday lending to military personnel to a 36% APR. Some legislators and banking regulators want to restrict payday loans for all borrowers because of the tendency for working class people to end up in a downward debt spiral after taking them out, but this has not happened on a national level.
The takeaway from all this is that payday loans should be used only in emergencies. Relying on low interest payday loans to cope with everyday expenses is unwise and expensive, no matter how low a payday lender’s fees are. Many people who take out cheap payday loans for everyday expenses wind up deep in debt. The only way out is to put a stop to all borrowing and start paying more than the minimum required payment. It may mean drastic cuts in spending, particularly on things that aren’t necessities. Anyone who is considering taking out a low interest payday loan should go into it fully aware of the risks, and should compare fees and interest rates first. Borrowing no more than absolutely necessary is also prudent, as is paying off the loan as soon as possible.
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