Understanding the Common Fees Associated with Your Payday Loan

A payday loan can save you a lot of stress if you come up short one month or have a minor financial emergency. These loans aren't meant for long-term borrowing or major financial pitfalls but for short-term use to cover small financial hiccups. Opt for an online payday loan when your paycheck is short due to illness or when an unexpected activity fee for your child pops up. Before signing, though, make sure you are aware of all the potential fees so you can pay back the loan without any surprises.

Annual Percentage Rate (APR)

The APR is the interest you will pay on top of the original loan amount. This should be made available to you via an easy-to-read fee schedule. APR rates vary widely between lenders, and there may be state-imposed caps on the amount of interest a lender can charge. Since payday loans are meant to be short-term loans, this interest is often presented as a one-time fee for the period of the loan. When shopping for loans, request the actual APR for the lender instead of looking only at the "interest fee" for a 14-day loan. A lender with a lower APR will cost less if you must keep the loan longer than the initial period. For example, a lender that offers a longer loan term may advertise a higher one-time fee than one with a shorter loan term, but the actual interest rate might be be lower for the first one. This will save you money if you need a longer loan term.

Origination Fees

In some cases, a lender may charge an origination fee. Much like the APR, this will be available on the fee schedule. Generally this fee is low, and it is there to cover the filing of the initial paperwork and setting up the loan. Once again, origination fees vary between lenders and they may be regulated by state laws. Some lenders advertise that they don't have origination fees, but make sure they don't have a higher APR rate instead. Compare the origination fees and APRs of a few lenders to find one that offers the lowest of both.

Third-Party Fees

Occasionally, there are third-party fees you must be aware of. For example, most online payday loans require direct payment from your bank account, but some will allow you to use a debit card for payments for a small fee. If you cannot make your payment on time, you may be able to set up a payment arrangement—once again for a fee. Finally, there may be additional fees and penalties added if your payment doesn't clear at your bank. These nonsufficient-funds fees can be charged by both the lender and your bank account holder.

To gain further information about payday loans and whether they are right for you, contact a representative from a service like EZ Money.