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A payday loan is a short-term loan that’s due when you get paid. It can help cover unexpected expenses. However, you must be careful about how much you borrow. Licensed lenders will disclose their fees clearly before you sign the loan.

You can also consider credit cards, which offer lower interest rates than payday loans. Also, try to work out a repayment plan with your creditors or utility companies.

Costs

Unless you're careful, payday loans can become a costly debt trap. They charge high fees and often roll over into new loans with more fees. They are also not appropriate for longer-term financial needs. Instead, you can explore options like credit cards or loans from a local bank. You can also ask for help from a trusted family member or friend.

Payday lenders typically require borrowers to write a post-dated check or authorize direct deposit to cover the loan amount plus fees. These checks are deposited on the borrower's next paycheck, and if they can't repay the full amount on the due date, the lender may attempt to automatically withdraw additional payments from the borrower's bank account. These repeated withdrawals can lead to expensive overdraft fees and bank charges.

Other short-term loans can be much less expensive than payday loans. Consider options like personal loans from a bank or a federal credit union. You can also contact a credit counselor for free advice.

Fees

Many payday lenders impose fees to the borrower to cover various costs, including loan processing and application fees. These fees can add up and may exceed the amount of the original loan. These fees often go unnoticed to the consumer. Some of these fees include late fees, returned check fees and prepaid card fees. In addition, some lenders report borrowers’ repayment history to the credit bureaus, which can damage a borrower’s credit.

In order to repay a payday loan, the borrower writes a postdated check for the full amount of the loan plus fees or provides the lender with an authorization to electronically withdraw funds from their bank account. If the borrower is unable to repay the debt in time, they can return to the lender and request a loan extension.

Many local charities and churches offer emergency loans with lower interest rates than payday lenders. Consider looking into these options before you apply for a payday loan.

Time to repay

The exact amount of time it takes to repay a payday loan will vary depending on state laws and the lender. But in general, you will be given two weeks to repay the balance plus fees. Typically, you will write the lender a postdated check for the full amount borrowed or authorize them to electronically withdraw funds from your bank account. If you are unable to pay the balance on the due date, some lenders may allow you to roll over the loan for another two-week period.

However, rolling over a payday loan can quickly lead to debt traps as interest rates and fees continue to increase. It is important to avoid taking out multiple payday loans, especially if you are struggling to manage your finances. You can get advice on budgeting and managing your money from the Money Advice Service or the Financial Ombudsman. Some states also protect consumers from high-cost payday loans with interest rate caps and other regulations.

Interest rates

Payday loans come with interest rates that are far more expensive than other forms of credit. These loans typically have two-week repayment periods and a finance charge of $15 to $30 per $100 borrowed. This translates to annual percentage rates (APR) of 391% to more than 600%.

The APR is a calculation that takes into account the amount borrowed, the financing charges, and how long the loan is outstanding. Federal law requires lenders to disclose these fees and the APR clearly in the loan agreement.

Borrowers can find alternatives to payday loans by searching for personal loans that are available from banks or credit unions, which are required to follow banking regulations. Often, these loans have lower rates than payday loans and report to the credit bureaus, which can help borrowers build up their credit scores over time. Also, many local charities and IL churches provide short-term loans at no cost to those in need. They can be a good resource in times of emergency, but remember to draw up an official agreement and stick to it.