Like all personal loans, payday loans come with certain fees to cover the lender’s risk of losing the money and their daily operating expenses. The amount you pay varies depending on your lender but there are some general constants you can expect to see.
What costs are involved with a payday loan?
Because payday loans last just a short period of time, lenders charge a one-time fee for each loan. Typically you can expect to pay $15 for every $100 you borrow. So if your loan amount totals $500, you’ll end up owing $575 when it comes time to repay.
Other costs and fees vary depending on your selected lender. Some examples of other potential costs include:
- Convenience Fees: Depending on how you receive your funds, you may have to pay a convenience fee to receive your money. Same day wire transfers, for example, usually require a fee ranging from $10 to $20.
- Late Fees: Like most bills, you will also be charged a late fee if you do not make your payment on time.
- Insufficient Funds Fee: If your lender tries to withdraw funds on the due date and they are not available in your account, you may also be responsible for an insufficient funds fee.
Many of these extra costs can be avoided by planning in advance and communicating with your payday lender.
How is this different from other loans?
While the percentage of the fee compared to the loan amount is high in payday loans, they don’t come with other fees that are often attached to traditional personal loans from banks. For instance, most payday lenders don’t charge application or origination fees. Additionally, while financial institutions offer lower interest rates, the repayment term can be years, compared to just a few weeks with a payday loan. Interest payments add up significantly as repayment is drawn out.
When choosing a loan, whether through a payday lender or a financial institution, always shop around for the best terms and conditions that work for your personal situation. Never be afraid to ask questions so that you’re not thrown off guard by surprise costs or fees.