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What is the Interest Rate on a Payday Loan? If ever there was a place where the old saying "money does not come cheap" applies, it is when you are talking about Payday Loans. No way around it, if you borrow money with a Payday Loan, you have to pay interest; that is how they stay in business. Just how much the Payday loan will cost you depends on several factors, such as the lender's policies, the length of the loan and how much you need to borrow. You always want to ask before you sign the papers, but generally, a Payday Loan will cost you around $15 per hundred you borrow. If you are not careful, this can run up quickly; a $500 loan will cost $75. If you cannot pay the full amount, some companies will actually charge you double. Many states, however, have capped the interest rates the loan companies can charge, so it may end up being less. Why are Payday Loan Rates So High? Yes, it is true that the interest rate for Payday Loans are higher than the rates for a bank loan, but there are several reasons that is true. The first reason is that Payday Loans offer something no one else does: Cash, right now. Bank Loans can take weeks or even months to arrive, Payday Loans are right now, today. Also, Payday Loans do not care what your credit looks like; they won''t even pull your credit report. This does translate as a bit more risk for them, so they charge for the risk with higher rates. Another thing to remember is payday Loans are very short term- two weeks or less. If the Payday Loan folks charged the 5% you see on a 5 year auto loan, it would hardly be worth it to them to lend the money. Yes, the interest rate on a Payday Loan is higher, but for good reasons. Further, compared to the benefits of the cash right away, the rates are insignificant. Always pay your loan back on time and the interest rates should give you no trouble at all.
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