The “payday loans” or payday loans are short-term loans in the amount of approximately $ 500. Payday loans have a high-interest rate and must be paid in full by the debtor’s next payday.
For example, if you have to replace a rubber band in your car and use a payday loan to cover the expenses, then you will have to repay the loan the day you receive your paycheck or pension.
How do payday loans work?
For Example
- You apply for a $ 500 loan with a $ 100 charge.
- You give the bank a $ 600 check or give your bank account number so they can withdraw the money from your account.
- The bank keeps your check and gives you $ 500 in cash.
- In 16 days, you pay the bank $ 600 in cash and it returns your check.
You paid $ 100 for taking $ 500 in cash.
Payday loans like wonga can be an attractive and convenient solution for getting out of trouble or unexpected expenses. However, you must be very careful, since these loans have a high-interest rate, commonly 400% to 500%. While if you compare the interest rate of a credit card or personal loan these can vary from 12% to 28%.
For example, if you get a payday loan of $ 500 with a charge of $ 100, the interest rate on the loan would be 456.25%. In total, you will pay $ 600 for the payday loan.
Payday Loan: $ 500
- Charge for obtaining the loan: (20% of the loan): $ 100
- Interest rate: 456.25%
- Term: 16 days
- Total: $ 600.00
When analyzing the payday loans, we can notice that the interest is extremely high if we compare it with the interest offered by the credit cards. For example, with a credit card that has an interest of 20% if you have a balance of $ 500 in the account, you could pay $ 46 monthly for 12 months. In the end, he would pay a total of $ 552.