What is a Payday Loan?
Jan 27th, 2010 by sophie smith
Turning on the television is all it takes to be flooded with commercials for payday loans and cash advances. Driving down the street you see them on just about every corner. Type payday loan into Google and you are sure to receive page after page of payday lenders like www.moneymutual.com. Payday loans are a relatively new type of loan, only since the early 1990′ s, and even though they got off to a late start they have certainly picked up steam in recent years. As a result of their short history, many people do not really understand what a payday loan is.
The most basic definition is pretty obvious by the name. A payday loan is a short-term loan designed to cover unexpected expenses until the next payday; they are usually set for two weeks. This differs from a cash advance in that a cash advance is usually set against a preset line of credit such as a credit card. There are two different types of interest rates that lenders use when giving a payday loan. The first is an annual percentage rate (APR). This is the more common type of interest. It is simply calculated by multiplying a set percentage (the APR) by the amount. The second type of interest is effective annual rate (EAR). This interest is considerable higher because it compounds the interest. It is important to pay close attention to the type of interest before signing any of the paper work. The regulations for payday loans vary from state to state. Some have many restrictions while others allow payday lenders to have free reign. In some states, such as Connecticut, payday loans are still illegal. Research the regulations in your state so you understand your options.
The Internet has become a major source of income for payday lenders. Anyone can go online, fill out the application, and have the money in their account later that day. They have made an already fast process even faster.
Their increased popularity has even earned them some celebrity endorsements. Money mutual montel williams is just one of the commercials currently flooding the Internet.
As with any financial decision, the way to make the best decision is to stay informed and read everything before you sign it.
Related posts: