Payday Loan Facts You Need to Know

The Rules about payday loans is very complicated and requires a professional explanation

There are many misconceptions about how payday loans work and how the industry is regulated. This publication will serve as the official payday loan facts for this site.

Payday loans work by providing a short-term loan to the borrower after it is secured by a check that is given to the payday loan company for future deposit or for authorization to withdraw the funds electronically in the future. Usually, the borrower writes the check for the amount they are requesting to borrow and then also add in the service fee and interest charges.

Once the term of the loan is fulfilled then the payday loan company simply deposits the check or withdraws it electronically from the clients bank account. If the borrower decides he wants to pay the loan in another way, then he must visit the company and "buy back" the check in cash for the amount the check is written for.

Payday loans can range from $100 - $1200 depending on which state you live in and what the current laws are. Getting a payday loan can be quite costly though and should only be used as an emergency source of cash. Interest rates can range form 300% - 400% APR for the term of a 2 week loan. With these terms, you would be much better off using a credit card or borrowing from a friend. If neither of these options is available to you then just remember to pay back the loan as soon as possible to limit the amount of interest you are paying on the loan.

A payday loan is really very similar to a cash advance on one of your credit cards. The major difference being that the term is much shorter and the interest ratesare much higher. Using a credit card to obtain cash though a cash advance can cost you 28% to 32% based on your credit qualification.

The allure to the payday loan is that the qualification are very low and those that don't qualify for credit cards can still find a way to borrow money. You really only need to have a bank account and a steady from of income to qualify for the loan. Some business have even formed online where you can request the loan over the internet and have the funds deposited directly into your bank account of choice.

No matter what you decide to do to get your loan, make sure that you think of the long term cost to the money you are borrowing or you could end up further in debt then you originally intended.