by Lori Fairbanks
Payday loans come with exorbitant interest rates and very short terms. The way they work is that a lender loans you funds until your next paycheck, at which point a single payment for the principal plus interest and fees is due. While payday loans may seem like a good idea to avoid high late fees or reconnection charges that come from not paying a bill, they are extremely risky.
The interest rates for payday loans are extreme, averaging between 300% and 800%. Lenders justify these rates because the normal term for a payday loan is between two and four weeks and rates represent interest on a full-year loan. The problem many borrowers face is that they are not able to pay off the large loan amount in one lump sum on their next payday. Most services offer renewals or rollovers, which provide more time to pay off the loan but also mean that interest starts adding up and high rates start making a noticeable difference.
While we do not recommend you take out a payday loan, we do recommend you have all the information you can if you decide you want one. We urge you to look into the lender before you agree to anything because many payday loan companies are the subject of lawsuits and investigations for illegal practices, and some have been fined for shady practices or customer harassment.
If we discover illegal lending or questionable practices in a service we review, we remove it from our lineup to ensure you have the best choices. However, it is wise to do your own research and learn everything you can. Houston payday loan services – including our top three of 100DayLoans. NetLoanUSA and 24/7Loan – connect you with third-party lenders to help you find the right payday loan, so look into the lender as well as the company connecting you with it.
Payday Loan Companies: What to Look For
Because of the high interest rates and short terms before payment is due, you want to know the ins and outs of your payday loan. Texas laws regulate certain aspects of payday loans, so you can read our articles on payday loans in Houston to learn about the process in your area. There are no direct lenders in Texas, so any service you decide to use will connect you with a third-party lender to complete your loan. The follow is the criteria we sent out when reviewing
and ranking services available for payday loans in Houston.
The loans features include some of the most important aspects of your loan: the amount, interest rates and associated fees. On July 1, 2014, laws in Houston went into effect limiting the maximum amount of a payday loan to 20% of an applicant's total monthly income. Many services offer up to $1,000, $2,000 or even $3,000, but all services must obey these new laws. Generally, lenders don't approve you for the maximum amount on your first loan. In the end, the exact amount is in the hands of the lender financing your loan, as long as it does not exceed 20%. Keep in mind that you do not have to – and should not – accept a loan larger than you need.
All services charge a fee per $100 borrowed, ranging from as low as $4 up to $30. However, around $20 is most common. This means that you are paying around 20% extra on your loan before interest, which can add up. As far as the interest rate or APR is concerned, the figures are always high. Payday loans are risky because of the extremely high APRs they come with. Common APRs range from 300% to 800%, and even above 1,000%. While these numbers are for a loan kept for six months to a full year and the terms of most payday loans are only two to four weeks, if you need an extension or a loan rollover, interest will continue to accrue at these extreme rates. Some services offer APRs below 100%, but that comes with time and good payment history.
If you cannot make your payment on time, you may be eligible for an extension or a loan rollover. You need to talk to your lender to determine your eligibility, and it is ultimately left up to their discretion. Any extension or rollover may come with additional fees, terms or commitments, so you want to make sure you understand what you are agreeing to before you accept any rollover or extension.
Help & Support
If the time comes that you need a payday loan and you have exhausted all other options, you want to know what to look for and what to avoid in a payday loan service. Because of high interest rates, fees and short terms, payday loans can be risky, so your best option is to go into the loan process as educated as you can be.
Category: Payday loans