Fixed And Variable For Payday Loans: What You Need To Know
Payday loans are notoriously costly forms of borrowing. Their APR, however, is often not clear at first glance. Payday lenders often refer to the cost of the loan as a flat fee rather than an interest rate.
This raises the question: how do you determine the cost of payday loans? What is the real interest rate of payday loans?
Learn more about payday loans and their real interest rates here.
Defining payday loans
Payday loans can be short-term and very expensive loans. Payday loans are offered in small amounts. The maximum amount is mostly $500.
Borrowers are required to pay the original balance and lender’s fees back two to four weeks after their next payday. In the event that they do not pay, the lender may try all ways whether legal or illegal to get the funds back.
What you need to qualify
Payday loans have lower qualification requirements than the average. These loans are offered by lenders to people with poor credit or limited credit histories as a way of making ends meet.
Can payday loans improve credit?
Payday lenders rarely report payment histories to credit bureaus. This means that payday lenders are not available to borrowers with poor credit. However, they can be used to help rebuild their credit scores.
Fixed and Variable Loans
With these loans, the interest rate is locked at the start of the loan and cannot be increased or decreased.
The interest rates in these loans can change during repayment depending on many factors.
Both interest rates are risky for the borrower. Variable rates, however, can be tricky.
Loans with fixed rates are not a good option as they can limit the borrower’s ability to save money. Loans that have a variable rate can be subject to unexpected price increases.
Lenders want the flexibility to increase their rates, particularly for long-term loans. In return, they will usually offer convenient terms, like a lower rate at the beginning, but with more flexibility.
Fixed loans are usually at a higher interest compared to variable loans.
What is the Difference between Fixed and Variable Payday Loans?
Technically, payday loans are fixed-interest loans. The cost of a payday loan should not surprise borrowers who take out one and pay it back on time. Although the lender is not allowed to charge fees beyond what was agreed upon, predatory lenders might try to change that rule.
Payday loans can be expensive so it is difficult to pay them back on time. In 2020, the average payday loan had a balance of $375. The average payday loan cost $75. This is a 521% APR. The average credit card’s APR was 15% in the year 2020.
Payday lenders will charge additional fees if you fail to repay your payday loan. While trying to collect, payday lenders can penalize borrowers by charging penalties, late fees, and even extra fees.
In theory, payday loan rates can be fixed. They are not expensive and may quickly become prohibitive if a borrower defaults.
Are You Still in a cycle of debt?
Oak Park Financial can help you if you have applied for payday loans but are having trouble paying it back. We are experts in assisting borrowers escape the prison of payday loans.
Get in touch with us today to get your payday loan paid off.