How to Choose a Payday Loan: Examining the Terms of the Loan

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The Federal Truth in Lending Act (TILA) obliges lenders to supply you with an unwritten statement that details all of the terms and conditions that apply to the loan. It is recommended that you receive an itemized statement in writing that details what the total amount is of payday loan, as well as the date of repayment as well as the rate of annual percent (APR). 

If the company you’re working with doesn’t give such a statement it is a sign to be wary. If a lender is unwilling to give this information might not be trustworthy.

You must sign an agreement in writing and signed.

All loans, including short-term payday loan must be included in an agreement for loans in writing. Before signing anything or taking any money you must go through the contract and ask questions regarding any conditions you don’t understand. The loan contract should make explicit the following points:

  • Principal amount for the loan
  • The date when the payment is due
  • The amount of charge for interest, (or “finance charge” that is paid
  • The APR equivalent of any finance or interest rate
  • The penalties or consequences of late payments.
  • The right to renew your loan at any time, as well as any other recurring charges.

Check whether the rate of interest is the same as the financing cost.

The typical bank loan or another well-established lender will advertise the interest rate. The majority of payday lenders don’t publicize the interest rate. Instead, they’ll set the “finance charge” or lending fee. 

This may be reasonable at the moment however, if you consider the interest rate equivalent to it then you may not be interested.

  • Consider, for instance, that the payday lender has a 20-percent finance fee per $100 loan over the duration of two weeks. It may appear reasonable for a lender, and they are relying on it. This is equivalent to an interest of 52% annually. A typical loan from a bank has an interest rate ranging from 10% to up to, at the most 20 percent.

Beware of automated financing.

Payday lenders earn profits because they make the procedure simple for you to make simple. If you’re unable to pay the loan back at the end of your initial two-week period The lender may offer the possibility of refinancing easy. 

Instead of paying back the total amount of the loan, you’ll only need to pay a fee of between $20 and $50 and the lender will let you extend the loan for an additional two weeks. Although this may sound nice and helpful however, it’s actually making you pay an interest rate of 300 percent or more.

  • Some lenders won’t even need to wait for you to request to extend the loan. If the loan isn’t paid in time the loan is automatically extended and the cost is incurred. In many cases, a part of your loan application might allow an institution access to your account, allowing you to pay the loan directly.
  • To stop this cycle of refinancing payday loans, you must discover a way to reduce your expenses and live comfortably, make additional money or be able to repay the loan you took out.

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