Online Payday Loan Financing
Posted on Thursday, August 5th, 2010 at 9:53 am in Financial Planning, General Payday Loan Tips, Helpful Payday Loan Info
Online payday loans provide convenient borrowing and flexible payment for cash strapped customers. When it comes to financing your payday loan, your lender may offer you several options. It’s important to understand all the finance options available and how they work to make the most of your instant cash advance loan.
Cash Advance APR
Finance charges on cash advances and payday loans are expressed in terms of annual percentage rates (APR), which is the standard calculation used to compare interest rates on similar types of long term lending. Because cash advances are short term loans borrowed for no longer than 30 day periods, the APR is not an accurate representation of the true interest on a payday loan. Nevertheless, a payday loan of $100 with a $15 service charge borrowed for 30 days carries an APR of 182.5% if repaid over a year or longer. Payday loans are typically paid back in a much shorter amount of time, so most customers won’t see interest rates this high.
Finance Options for Payday Loans
You have several options for paying back your loan, all with different financing and service fees. The easiest and most cost effective finance option is to pay your loan and service charge in full at the end of the lending period. The typical finance charge on a 30 day cash advance is only 15% of the loan, resulting in much lower interest rates than the APR quoted above.
The next available option is to pay your loan in several smaller installments. Some lenders charge for additional financing with each installment, which will increase your interest rate. Other lenders offer monthly installment plans at no additional charge. Talk with your lender to verify whether an additional charge will apply for monthly financing.
Your third option is also the most costly and not recommended unless under significant financial strain. If you cannot afford to repay your loan right away in a single or monthly installment, you have the option of renewing your loan for another 14 to 30 day term by paying just the service fee and rolling over the principal amount. While this option will give you additional time to accumulate enough funds to pay back your loan, it also results in significantly higher interest rates as you continue to pay the service fee to roll over your loan every month.
Evaluate your personal finances and decide on the financing that works best for your budget. Always discuss alternate payment plans with your online payday loan lender before borrowing.
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