Payday loans are the face of predatory lending in the United States and most particularly in California. It is due to one reason which is the fact that the average interest rate on an average payday loan is about 391 percent. Yes, you read that correct. This is only the rate that you are expected to pay if you do pay back within two weeks. This is why you should consider checking out online cash advance as it is a good alternative to the usual high rates.
Comparison to Other Average Interest Rates
In case you are unable to repay the loans, then the CFPB (Consumer Financial Protection Bureau) allows the interest rate to soar to 521 percent and it would only continue to rise each time you are unable to pay the debt. Compare the interest rate of a payday loan to an average interest rate for other alternatives such as credit cards which sit at 15 to 30 percent, debt management programs that charge 8 to 10 percent, personal loans that require 14 to 35 percent, and online lending which sits at a 10 to 35 percent. You would easily see that payday loans charge extremely high interest rates.
The only reason why one should even consider getting a payday loan is if they need a quick-fix solution. Otherwise, it is not recommended. Budget conscious families or individuals should be cautious when considering a payday loan and should only take one out in case they are sure that they would be able to pay in a short period of time.
How Does a Payday Loan Work?
- Customers are required to fill out a registration form for payday lending. Only three documents are needed which are a bank account number, a recent pay stub and identification.
- The amount of loan varies from $50 to about $1,000 depending on which state one lives in. If approved, you would immediately receive cash on the spot.
- Full payment would be due on the next payday of the borrower, which would be around two week’s time.
- Either a post-dated personal check would be issued to the lender which coincides with the next paycheck or they would provide the payday lender with electronic access for withdrawal of funds from the bank account of the customer.
- For every $100 borrowed, payday lenders usually charge interest of about $15 to $20. The annual percentage rate basis (APR) is used for the calculation. The APR would range anywhere from 391 percent to over 521 percent for the payday loan.
Situation in California Related to Payday Loans
Although, California might be home to some of the wealthiest and most famous personalities, residents of the Golden State get to pay one of the highest interest rates for a payday loan. With a poverty rate of 15.8 percent in California, it can be difficult to make ends meet in the state. Cities such as Sacramento and San Diego require at least 6 figures a year to survive, not to mention that San Francisco is one of the most expensive cities in the entire country.