Consumer experts sometimes express concern about payday loans because of the relatively high interest rates. However, individuals who need help from online payday lenders typically do not qualify for any of the more standard options for borrowing money. They may have no credit or poor credit, making it impossible to qualify for a bank loan or a credit card.
Without online payday lenders, these men and women may face the risk of worse trouble than they already are dealing with. They may have to get an auto title loan instead, for example. That raises the risk of losing their car if they cannot pay the minimum amount due on each payment date. Pawnshops also offer short-term loans, but there is a risk of losing one’s prized possessions if the interest payment cannot be paid on time.
Why Interest Rates Are Higher
It should be noted that these options also have high finance charges. Payday loan interest is higher than that of a bank loan because the lender is taking on extra risk. The borrowers have not established good or excellent credit.
The Actual Finance Charge
The idea is that the loan will be paid back in full with the next paycheck, making the actual finance charge a reasonable one. On a $200 loan, the full finance charge might be $30. It will be less if the borrower can pay the loan back sooner.