Archive for December, 2011

The Hidden Catch Behind Payday Loan Installment Loans

There are several payday loan companies in the market these days that are offering payday loan installment loans, which are similar to any other payday cash advances; the only difference is that these types of loans allow borrowers to make the repayment in monthly installments. The overall repayment period in this case is usually three to five months. Though it looks like a great convenience for borrowers, there is a serious hidden catch behind it, which you must be well aware of. Following is a brief rundown on it.

The Monthly Installments Are Never Equal; Every Next Month, The Installment Amount Gets Bigger

When you go through the loan contract, you may get an impression that you will be repaying the money in equal monthly installments, but you are advised to make sure that the loan contract mentions the same specifically in writing. In general, like any other pay day cash advances, payday loan installment loans also charge somewhere around $30 to $50 per $100 of loan. If you are borrowing $500 of loan for a 5-month period, you may get an impression in the first look that you will be repaying $130 to $150 every month for the next five pay days. If the lender does not mention the installment amount for every month specifically, such calculations can be seriously misleading.

In reality, payday lenders charge $30-$50 for every $100 of loan “ISSUED FOR A 2-WEEK PERIOD”. So, if you borrow $500 on a particular month while your next pay day is 2-week away, your first installment will be $130-$150. The principal amount for every installment is obviously $100. For the first installment, you pay interest on $100 for a period of two weeks, which means the first installment will be $130 to $150. But, for the second installment, you will have to pay interest on $100 for a period of two weeks plus one month, which means the second installment is going to be somewhere around $190 to $250. The third installment can be much bigger, as you will be paying interest on $100, this time for a period of two weeks plus two months, which means the amount of the third installment will be around $250 to $350. Likewise, the fourth installment will be around

$310 to $450 while the fifth installment can be somewhere around $370 to $550. So, overall, you may have to repay a total sum of anywhere around $1150 to $1750.

As you can see, payday loan installment loans look like an easy and convenient loan, but it can actually trap you into a horrible ocean of debt. Therefore, you are advised to read the loan contract very carefully. If certain things are not clearly mentioned in the contract, request the lender to clarify those parts in writing. Even federal laws have made it mandatory for all types of lenders to include a disclosure section, where all hidden terms and provisions must be explained clearly. So, do not hesitate in asking for written clarification. If they hesitate in providing a written clarification, you should take it as an alert sign and you should avoid such lenders at all costs.

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