First of all, if you need the loan fast, then the only institution that will be willing to offer the loan will be a payday loan lender (also known as a cash advance lender but they are really the same thing). Unfortunately, the origination costs of such a small dollar loan are too high for traditional banks or credit unions to offer, which is why the payday loan industry has stepped in. You can learn more about payday loans here:
http://en.wikipedia.org/wiki/Payday_loan
http://www.youtube.com/watch?v=BHTMuHvmarU
How These $200 Cash Loans Work
Essentially, they are very simple – you will typically have to write a pre-dated check (or fill out an online form allowing the lender to receive cash from your bank account on a future date) for the amount of the loan, plus interest and origination fees. You then get your cash, and the lender will cash your check after your next payday (hence the name, payday loans).
Costs of the Loan
The costs for $200 cash loans will vary widely according to the state you live in, as all states have different lending laws that businesses must follow. We are working on putting a list together of all the state laws, which you can read here:
If such lending is allowed in your state, then you will typically be charged around $15 per $100 borrowed. This means that on a 200 loan, you can expect to pay somewhere around $30 in interest and fees, depending on the lender (lender fees also can vary). There are two ways you can look at these fees: in terms of APR, or annual percentage rate, or a simple rate of about 15% for two weeks. The law requires lenders to post the rates in terms of APR, with the goal being to help you as a consumer see how costly these loans are. The average APR for a payday loan will be around 450% APR.
Valid Reasons When You Would Need a 200 Loan
Because these cash advances/payday loans are not cheap, you need to be very careful before you take one out. Yes, borrowing $200 is not that much….but only if you do it once or twice. Sadly, many people end up taking out too many payday loans and they hurt their financial situation by doing so. A good rule of thumb is to only take payday loans out in cases of true emergencies, when the funding need is only short-term. Never take out such a loan to fund long-term obligations, or anything that is non-essential (i.e. vacations, etc.).
In addition, in some cases you may find that you are in a financial bind and have some fees that are due which would be more than the fees due by taking out a small payday loan. Examples can be:
- A credit card payment is due and you don’t have the money. Obviously you want to avoid this situation at all costs and not get into credit card debt. However, it can also be extremely costly if you don’t pay at least the minimum payment on the credit card. If you need a payday loan to pay your credit card payment, then borrow only enough to cover the minimum payment. By doing this you will lessen your overall fees, as you won’t be charged a late fee, and your interest rate on your credit card will not go up.
- A utility bill is due. Utility bills can have late fees that are much higher then payday loan fees, especially if you are needing a loan for 200 to just cover the bill for one month.
- You wrote a personal check that will bounce if money is not deposited into your account. Bounced check fees can also be more expensive than some payday loan rates. Before you take out a loan to avoid the check fee make sure this is the case.
These are the most common examples of when it would make financial sense to take out a 200 loan from a payday lender.