Loans are one of the most important transactions in the financial world. There are a variety of them these days. Generally, loans are sanctioned by banks and these loans deal in a lot of money. That can be a problem for some people who want to get some money for emergency expenses. This is where speedy payday loans come in.
What Are Payday Loans?
Payday loan is a term which is used to describe a financial transaction in which small amounts of money are lent to people. On an average, the amount lent is around $350. In some cases, the amount can be as much as $500. The time limit for repaying the loan is two weeks or until the next payday of the borrower. In return for the loan, interest is paid on the loaned amount. Payday lending is another term for this type of loan.
Therefore, this is just like any other loan from a bank. However, you will have noted that there are a few differences which are given below.
- The amount is lower than $500.
- The term is very short, up to a few weeks.
- There are no payment installments in payday loans.
- Speed payday loans are not provided by banks.
- These loans are approved within minutes.
Due to the relative ease with which such loans can be got, it is important for the borrowers to understand what they are getting into when getting a speedy loan now. There are quite a few facts about these loans that you should be familiar with. This will help you come to the right decision for your financial future.
The Interest Rates
The fact is that payday loans have a short term. As a result, most people are not always capable of understanding the actual rates they are paying. After all, the interest is based on the term of the loan which is typically two weeks. Check out this example. A person may get a two-week payday loan for 15%. In reality, that loan is being provided at an annual interest rate of 390%. In other words, you will actually be paying more interest.
The Number of Loans
On an average, a payday borrower will have nine transactions over the course of a single year. The payday lending industry is mainly supported by people who take out 5 or more loans every year. In fact, it is these people who are responsible for 90% of the business. More than 60% of the business is generated by people who take out 12 or more loans every year. On the other hand, people who take out these loans only once contribute to only 2% of the business.
The Extent of the Business
The payday lending industry has been in business since the 1990s. Since that time, it has managed to establish itself pretty well in the United States. In fact, it has been estimated that there are 22,000 locations in USA alone. Together, these locations generate $27 billion approximately in loan volume annually. In the US, there are two institutions for speedy payday loans for every Starbucks store. In other words, there is no shortage of places to get these loans.
Other Facts about Payday Loans
There are many other facts about the payday lending business you should know about. Some of them are quite interesting, after all.
- Every year in the US, 12 million people use payday loans to borrow a whopping $50 billion approximately.
- It is possible for the rates charged on these loans to be around 35 times of the charges levied on credit card loans. They are also 80 times of the rates which are charged for auto loans and home mortgages.
- In the US, it has been estimated that the annual percentage rate on these loans can range from 196% to 574%. The highest rates are found in Wisconsin and Mississippi. The lowest is in Minnesota.
- Generally, borrowers tend to owe money for 5 months because of these loans. On an average, they pay $800 for a loan of $300.
- Areas which have a higher poverty rates are also where institutions offering speedy loan now aggregate.
In spite of the problems caused by payday loans, the fact remains that they offer a convenient solution to those in need of money.