Payday loan stores typically charge per one-hundred dollars borrowed. So if you accept a $300 loan and the rate is $25 per $100, you will owe a total amount of $375 on payday. You will also be responsible for any other administrative fees associated with making the loan. So the total will not be exactly $375. Likewise, if you do not pay on the agreed upon pay date, but rather choose to roll over the loan, your total owing is going to be very high in relation to the amount borrowed. Whether you repay within the alloted time frame or you extend the loan through several pay periods, you will always borrow the funds at a high rate of interest.
Various organizations such as credit counseling groups, credit union associations, and industry watchdogs have estimated interest rates to be as high as 900% in some circumstances. Thus, the reason why payday loans are never a long-term solution to financial problems. Costs skyrocket out of control very quickly. In fact, most states that do permit payday loans have capped the interest rates. In some cases, this action has caused the loan stores to close down since they could not earn the type of margins they envisioned, and in other cases, they have operated under the radar, only to become visible when consumers realize they have a right to complain to state authorities.
Because the loan companies must turn over large numbers of loans to stay in business, it is obvious that they are going to charge as much as they can for their services. It might not be moral, but it is a fact of doing business. They are not a charity, and their services are not there to help you. They are there to make a profit for the owners. And as we have stated throughout this website, if you absolutely must use the services of payday loan operators, one time should be the maximum. Obtain your loan, pay it off, and walk away. The key is to avoid addiction.
In addition, there are personal costs to obtaining payday loans. You will invariably damage what credit you had. You might be summoned to attend a court date to defend yourself in case of non-payment. You may require the services of credit counseling if you cannot repay the loan, although putting your financial house in order would not be a bad consequence, particularly if you can benefit from the help.
But more importantly, what is the cost to your daily life? If you agree to a payday loan to cover an emergency, what will you do on payday? Will you have enough money for the groceries? Will you be able to pay your gas, water or hydro bills?
If your emergency was not life threatening, then how can the loan be worth the trouble it might cause you down the road? So maybe the real cost of a payday loan is your home, when you reach the point that you are only making payments to the payday loans company, and not to your landlord or mortgage holder.