When your loan application is approved, it is best to keep calm and carefully study the offer. Remember that any formal agreement with your lender is a document stipulating your rights and responsibilities within the scope of current law. Payday loans are similar to any legal borrowing arrangement. Its conditions determine how much you will pay for borrowing, when, and what implications will follow your failure to comply.
As the policies of different lenders vary, so do their agreements. As an applicant, you must be fully aware of all potential risks. This requires knowledge of the nature of payday loans and, in particular:
- interest rate;
- terms and conditions;
As a type of cash advance, they are widely used by US residents in urgent need of extra money – for example, when unexpected bills emerge. These loans do not require applicants to provide any collateral. They only require a post-dated check or direct debit, so that on the due date the lender will receive the amount owed by the borrower.
Aside from due dates, agreements include such significant terms as amounts to repay (the interest rate plus all charges). It is important to be fully aware of all calculations so that due dates bring no surprises. Other clauses will include conditions of cancellation and early repayment, consequences of non-payment, and complaint procedures.
It is essential to appreciate the nature of interest rates and APR disclosed by any honest lender. On average, for each $100 borrowed (typically for a 14-day period) a lender will charge you $15, i.e., 15% simple interest rate. APR, in contrast, determines how much you could pay if a payday loan was extended for a full year. Thus, while this figure is irrelevant for payday loan arrangements, it is handy when comparing different borrowing options with longer terms.
Consequences of Failure to Repay the Loan
An important clause determines what happens if a borrower does not repay on time. In this respect, there is little difference from other types of unsecured debt, as penalties begin to amass. To prevent your lender from resorting to criminal prosecution, you may take advantage of the “rollover” option if it is included. With such arrangement, your due date is extended, while only service fees are charged. If rollovers entail fees, these must be specified. Finally, conditions of cancellation will apply if you happen to change your mind.
Overall, like any legal document, a payday loan agreement must be read and properly understood. As an applicant, you may ask your lender for any calculations and clarification when necessary. With prudence and common sense, you will be able to repay your debt easily.