High Interest RatesIf you think your credit cards have high interest rates, you haven't seen anything yet. Payday loans can have interest rates as high as 911% for a one-week loan, and 212% for a one-month loan. That blows the average credit card interest rate of 14.59% clear out of the water. While your loan is meant to be a short-term fix, you will wind up paying an exorbitant amount of money on interest alone. Keep in mind that when you sign up for a payday loan, the lenders will request that your transactions be performed through direct deposit or electronic transfer, which means they will have access to your bank account when they assess their interest rates.
Hidden FeesJust like there are several hidden bank fees, there are also hidden fees with payday loans. For every $100 borrowed, the lender will assess a $17.50 charge up to a cap of $300. These fees are on top of the loan capital and interest rates, making payday loans a very expensive method of borrowing money. Prior to borrowing money, make sure that you read the fine print and understand your financial obligation.
Banned or Tightly Regulated for Good ReasonPayday loans are now illegal or tightly monitored in 18 states across the U.S., and it is for good reason. The states that are taking payday loans very seriously include Arizona, Arkansas, Colorado, Connecticut, Georgia, Maine, Maryland, Massachusetts, Montana, New Hampshire, New Jersey, New York, North Carolina, Ohio, Oregon, Pennsylvania, Vermont, Washington, D.C. and West Virginia.
Legislature is being enforced in these states to either ban outright or limit the interest rates, fees and billing practices of payday loan lenders. Because payday loans are often sought out by individuals who cannot obtain a loan elsewhere, lenders take advantage of borrowers and try to scare them into paying more than they have to. Additionally, because some states have banned payday loans outright, many unethical lenders hide on the Internet, seeking consumers regardless of where they live.