Author Box
Articles Categories
All Categories
Articles Resources

Why Payday Lenders Interest Rates Are Higher Than Others

June 29, 2012 | Comments: 0 | Views: 218

Why do payday lenders charge higher interest than a traditional bank or other lending institutions? Simply put: The risk to loan is higher. With payday lenders, the borrower has access to fast cash without going through a stream of paperwork and the hassle of a credit check. Banks and credit unions loan money on a long-term basis, collecting interest fees over a period of time. These institutions are pickier about who they loan to, usually approving only those who have good credit ratings, low debt-to-income ratios, and fall into a certain income bracket. This provides more security for the lending institution thus lowering the risk of the borrower defaulting on the loan.

Payday lenders, on the other hand, consider the applicant's job, income, and direct deposit as their collateral, thus eliminating the need to ask for other proof of credibility. Credit checks are not run on the borrower so the lender does not know what kind of payment history the borrower brings to the "application table". These lenders do require that applicants have no more than two other loans out at the time of application. They can verify this through a system called CL Verify. Essentially, the lender is taking more of a risk when they give a loan because they are not using the same criteria as traditional lending institutions. With the average of two out of three pay day loans not being paid back, lenders who offer online payday loans are taking a greater risk.

Something to remember when looking at the rates of payday lenders versus banks and credit unions is that interest is calculated on a short-term basis so it seems higher. For example: a bank may offer a loan that will take 12 months to pay off at an annual interest rate of 10%. That rate may seem much lower than a payday loan but that's because the interest fees are being charged over a longer period of time. With a short-term loan, the interest is calculated based on the loan being paid back within 7-21 days on average. When you do the math, the interest rate will ultimately come out looking higher but you may end up paying more on the long term loan.

The bottom line is that choosing a loan and lender is at the discretion of the borrower. Researching lenders and interest rates is in the best interest of someone looking to take out a loan, whether short or long term. Payday lenders offer the advantage of a quick application process and funding time and don't put the borrower through a grueling application process. It's important to remember that these types of loans are meant to be short-term with repayment coming out of the borrower's next paycheck.

Spotya is a trusted source for an online payday loan. Visit for more information.

Source: EzineArticles
Was this Helpful ?

Rate this Article

Article Tags:

Online Payday Loans


Payday Loans


Payday Lenders


Payday Lenders Online


Online Pay Day Loans

The 3 Month Payday Loans is most suitable options for the people who do not possess assets. There are a variety of loan options for the people who are willing to pledge assets against the cash

By: Cameron white l Finance > Personal Finance l July 09, 2013 lViews: 560

For many people, bankruptcy can make their world fall apart. The apparent loss of reputation coupled with the inability to take financial decisions can deter anyone from thinking clearly. But all is

By: noragwilt l Finance > Bankruptcy Lawyers l November 18, 2012 lViews: 303

If you are availing payday loans with monthly payments, it is easy for you to obtain quick money from online lending companies.By getting the best deals of loan, you can save money in terms of

By: Malen Cheks l Finance > Loans l November 16, 2012 lViews: 288

Loans online have become the popular source of income and people can make smart decision of taking it.Now, don’t go anywhere and sit in your home silently. Such deals would bring you money without

By: Marsh Jone l Finance > Loans l November 13, 2012 lViews: 288

Loans for the unemployed would let you feel comfortable with your unstable conditions due to jobless period.If you compare the rates of a few lenders, you would definitely get the suitable lender to

By: kelse roy l Finance > Loans l November 13, 2012 lViews: 467

By taking cash advance for bad credit, it is easy for you to improve your credit status. This loan is useful to relieve financial stress. This loan is totally free from credit verification and

By: Honard Nork l Finance > Loans l November 09, 2012 lViews: 300

Fast payday loans perfect way to cope up with all your financial problems without getting tensed or depressed. This loans scheme surely brings happy simile in your life once again. Applying online is

By: Daniel Robertl Finance > PayDay Loansl August 06, 2012 lViews: 342

All-in-all, same day loans is a good financial support for those borrowers who need instant cash before they received monthly paycheck.So this is the reason of the popularity of these loans. There

By: Cameron whitel Finance > PayDay Loansl July 30, 2012 lViews: 242

While instant payday loans are useful for emergency situations, obtaining one can be avoided by aligning your finances. You don't need to get instant loans if you manage your finances well. People do

By: Cedric P Loisellel Finance > PayDay Loansl June 28, 2012 lViews: 221

Approvals on payday loans with bad credit are amongst the most commonly secured loans on the market. In fact, they are much more simply approved that many expect and offer a genuine break to

By: Mary Wisel Finance > PayDay Loansl June 27, 2012 lViews: 185

It can be a difficult situation when you are short of funds. Thankfully for emergencies, there are short term loans available. Payday loans are one common way to get money right away. You can obtain

By: Brad Reganl Finance > PayDay Loansl June 26, 2012 lViews: 175

The payday loan industry is regulated by individual states in which you live. Even online payday loan companies need to follow the rules in the state you live not the one the business is from. There

By: Jen Smartl Finance > PayDay Loansl June 26, 2012 lViews: 169

State Regulations for Payday Loan Companies have fallen short when it comes to certain lenders. Borrowers may find themselves unprotected and without recourse if borrowing from an offshore or

By: Melissa Daleyl Finance > PayDay Loansl June 26, 2012 lViews: 197

Discuss this Article

comments powered by Disqus