Bad Credit Payday Loans

People hear the term ‘bad credit payday loans’ so often, but I don’t think the average person really understands the payday loan industry. Yes, it is kind of the wild west of lending, but there are regulations and limits in place to protect the borrowers, who do at times seem to need protection from themselves. I want to discuss certain aspects of payday loans so you have a better idea of what they are, and what they are not.

So what exactly is a payday loan?

It’s a short term cash loan from direct lenders to borrowers who need to borrow against their next paycheck. The loans usually vary in size from about $100 to a maximum of $1,500.

How do payday lenders make their money?

Payday loan providers make their money off the comparatively high interest and fees they charge on these short term loans. Fees usually range from $10 per $100 borrowed to $30 per $100 borrowed. While there isn’t a nominal interest rate attached to the loans, there is an effective interest rate that stems from the fact that most lenders will let you extend the repayment period for another fee. This is actually where payday loans get their bad name.

Using a calculator on paydayloaninfo.org, I calculated that a loan that gets renewed eight times (the lower end of the average according to my research) will end up costing the borrower $180 to repay over a 16 week period. That’s an effective APR of 260%.

Are payday loans hard to qualify for?

Fortunately, and unfortunately, no. They’re very easy to qualify for. Nearly anyone with an active bank account into which the loan can be directly deposited can receive a payday loan, even with terrible credit. The only other requirement is a job. This is fortunate for those people that are really desperate for some cash, and unfortunate for those same people. Once you think about the fact that the average borrower renews or extends her loan eight to thirteen times, you realize how people can really ruin themselves with this kind of debt.

You should be extremely cautious if you have to borrow money this way. It might relieve the stress you’d feel for a few days, but it will magnify the stress you have in the weeks and months to come.