What Is The Average APR For A Direct Payday Loan?
Ever since we started this blog, people have asked us which direct payday lenders have the best and or worst interest rates. Some of these consumers need quick cash for a financial emergency and have nowhere else to turn. But they’re concerned about horror stories where they heard of interest rates climbing into the thousands! It’s in their best interest to investigate their options and do all they can to avoid getting a direct payday loan. As we’ve touched on many times there are better options than getting a direct lender payday loan. For example, you should try to get a cash advance from your credit, ask a friend for a cash loan, or just do some odd jobs for quick cash. You can read more about the different alternatives to getting a payday advance and ultimately make a final decision. With that, what happens when your only option is to get a direct lender payday loan. In this blog post we’ll do our best to break down what type of interest rates and terms you can expect with a payday loan.
Most reputable direct payday loan lenders charge interest rates anywhere from 200% to 600%. At first glance that seems incredibly high and out of control. Compare those terms to a traditional bank loan and you’ll be stunned at how high that rate is! There are few things to consider when it comes to installment lenders. As well when it comes to finding the best direct lenders of payday loans. First off, it’s in your best interest to pay off a direct payday loan before it becomes past due. We can’t stress this enough. Many consumers get in trouble by not paying off a short term advance on the day it’s due and letting the loan “roll over”. Never let a payday loan roll over past its due date. If this happens you will accrue huge amounts of interest charges. Any finance charge in the hundreds is going to hit you hard. If you’re responsible and don’t let the payday loan rollover you’ll end up paying back roughly $15 for every $100 borrowed. You’re still effectively charged an interest rate of 400% on average. But you paid off the loan by its due date and didn’t let the finance charges get out of control.
There are other reasons that short term lending interest rates are so high. Mostly because the average direct payday lender takes on risk when issuing a loan. Short term loans have default rates of 20% or more while traditional bank loans are in the single digits. Most banks and credit unions go off the Federal Reserve Prime Rate to find the amount they charge in interest. It can be different with direct lender loans as each company will consider factors like bad credit and employment history. That’s not to say these direct payday lenders funding payday loans aren’t making money. But it’s not as much as you may think when you understand how many loans will default because of fraud or lack of payment.
Pay Off Your Direct Payday Loan Early As The Interest Rate Will Be High!
To answer the original question, “what company that offers direct payday loans has the best interest rates”. We would probably tell you that none of them do if you need a cash advance or personal loan. On the other hand, if you need financing then all of them have pretty similar rates. But you can usually find a winner by doing your research and talking to the direct lender online. As an example CashNet and Ace Cash Express are usually seen as two of the biggest direct payday loan lenders around. These two companies have rather similar interest rates at around 500%. Yes, that’s a lot, but if you pay back your loan by the due date it’s less than $50 for a typical installment loan. Also, some direct payday lenders will periodically have coupon codes or holiday specials. With these options you can get a percentage discount on your monthly rates. To summarize, do what you can to avoid getting a direct lender loan. If you can get an installment loan or a direct personal loan go with that option instead, as you’ll have lower interest rates and more time to pay back the loan. If it’s an emergency and you don’t have any other options than make sure you go with a reputable direct payday lender that discloses everything up front. Most importantly don’t let your cash advance from a direct lender rollover as that will only add interest and late fees. Do all you can to pay the loan off in full on the day it’s due! It’s important to point out that rates are sky high with almost any type of short term loan. We can’t stress enough how you need to pay off these high interest cash advances as quickly as possible. Contact your direct lender to see if they will agree to a payment plan or early payoff as a way to reduce the APR over the life of the loan!
Reach out to a credit union or bank and see if they can offer a lower interest rate or better payoff terms!