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The loan amount can range from $100 to $1,000 and the loan term is usually about two-weeks. Lenders charge very high interest rates on these loans that can range from $15-$30 for borrowing $100.
So, what is the process of getting a payday loan? This type of loan is the only available credit option for bad credit customers who are unable to obtain any bank loan or credit card. These loans are primarily given by check cashers, pawn shops, gas stations and other finance companies. The borrower issues a post-dated personal check for the amount to be borrowed along with the fee. In return, lenders issues cash which is equal to the total amount minus the fee. The lender holds the check until the next payday. The loan amount is obtained by depositing the check in the bank or else, the borrower can redeem the check by the paying the entire loan amount in lump sum.
In order to obtain this loan, the customer needs to have an operating bank account along with a steady source of income. Apart from these, customers also need to show their identification proof to the lenders. However, lenders do not go for a complete credit report of the customer when issuing the loan. Payday loans are convenient. But, this convenience is really expensive. For example, consider a $300 cash advance on a credit card that needs to be repaid in one month. Finance charges on this loan are $13.99 and the annual interest rate on this is almost 57 percent. For the same amount, if one takes a payday loan, a one time renewal would cost around $105 and the annual interest rate would be approximately 426 percent, making it highly expensive.
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