Overview of Payday Loans
Payday loans typically have three noteworthy features. The loans are for smaller amounts as previously stated and are taken out of your next paycheck. Additionally, most payday loans require that you allow lenders to access your bank account or that you write a check for the entire amount beforehand so that your lender can withdraw the amount from your account in the case that you do not repay it on time. Other features of payday loans vary. For instance, many payday loans are designed to be paid off in a lump-sum payment with interest-only payments called “rollovers” or “renewals”. In other cases, payday loans can be structured so that they are paid in installments over a length of time.
How Payday Loans Are Paid Out
There are several ways that a lender may disburse loan funds to you, including by check or cash, electronically depositing funds, putting it on a prepaid debit card or directly into your checking account. The finance charge associated with this type of loan can be anywhere from $10 to $30 for each $100 that you borrow. For example, a two-week payday loan with a $15 per $100 fee has an APR of 400 percent. In comparison, a typical credit card has an APR of between 12 and 30 percent. The fee you will be charged depends on the state you live in and other such factors. There are even some states in which payday loans are prohibited.
Payday Loans from Banks
You may also receive a payday loan from a bank as they offer this type of loan as a way to make money on the fees that accumulate since banks charge similar fees to payday loan stores. Often, people choose to take out payday loans from banks because of an emergency. Although banks may not call their product a “payday loan,” it generally comes with the same features.
How to Take Out a Payday Loan from a Bank
You may apply for a payday loan by simply asking your bank. If you can make an agreement with the bank, then your savings or checking account will be credited for the amount. On the agreed upon due date, the bank will simply debit the same amount along with their fee right from your account. If you do not have the funds to repay the bank when it is due, then the bank likely will take the amount from its overdraft facility, which will cause higher interest to start accumulating on it.