Alert Payday Loans|
= Costly Cash
"I just need enough cash to tide me over until
"GET CASH UNTIL PAYDAY! . . . $100 OR MORE . . .
The ads are on the radio, television, the Internet, even in the mail.
They refer to payday loans - which come at a very high price.
Check cashers, finance companies and others are making small,
short-term, high-rate loans that go by a variety of names: payday loans,
cash advance loans, check advance loans, post-dated check loans or
deferred deposit check loans.
Usually, a borrower writes a personal check payable to the lender for
the amount he or she wishes to borrow plus a fee. The company gives the
borrower the amount of the check minus the fee. Fees charged for payday
loans are usually a percentage of the face value of the check or a fee
charged per amount borrowed - say, for every $50 or $100 loaned. And, if
you extend or "roll-over" the loan - say for another two weeks - you will
pay the fees for each extension.
Under the Truth in Lending Act, the cost of payday loans - like other
types of credit - must be disclosed. Among other information, you must
receive, in writing, the finance charge (a dollar amount) and the annual
percentage rate or APR (the cost of credit on a yearly basis).
A cash advance loan secured by a personal check - such as a payday loan
- is very expensive credit. Let's say you write a personal check for $115
to borrow $100 for up to 14 days. The check casher or payday lender agrees
to hold the check until your next payday. At that time, depending on the
particular plan, the lender deposits the check, you redeem the check by
paying the $115 in cash, or you roll-over the check by paying a fee to
extend the loan for another two weeks. In this example, the cost of the
initial loan is a $15 finance charge and 391 percent APR. If you roll-over
the loan three times, the finance charge would climb to $60 to borrow
Alternatives to Payday Loans
There are other options. Consider the possibilities before choosing a
When you need credit, shop carefully. Compare offers. Look
for the credit offer with the lowest APR - consider a small loan from
your credit union or small loan company, an advance on pay from your
employer, or a loan from family or friends. A cash advance on a credit
card also may be a possibility, but it may have a higher interest rate
than your other sources of funds: find out the terms before you decide.
Also, a local community-based organization may make small business loans
Compare the APR and the finance charge (which includes
loan fees, interest and other types of credit costs) of credit offers to
get the lowest cost.
Ask your creditors for more time to pay your bills. Find
out what they will charge for that service - as a late charge, an
additional finance charge or a higher interest rate.
Make a realistic budget, and figure your monthly and daily
expenditures. Avoid unnecessary purchases - even small daily items.
Their costs add up. Also, build some savings - even small deposits can
help - to avoid borrowing for emergencies, unexpected expenses or other
items. For example, by putting the amount of the fee that would be paid
on a typical $300 payday loan in a savings account for six months, you
would have extra dollars available. This can give you a buffer against
Find out if you have, or can get, overdraft protection on
your checking account. If you are regularly using most or all of the
funds in your account and if you make a mistake in your checking (or
savings) account ledger or records, overdraft protection can help
protect you from further credit problems. Find out the terms of
If you need help working out a debt repayment plan with
creditors or developing a budget, contact your local consumer credit
counseling service. There are non-profit groups in every state that
offer credit guidance to consumers. These services are available at
little or no cost. Also, check with your employer, credit union or
housing authority for no- or low-cost credit counseling programs.
If you decide you must use a payday loan, borrow only as
much as you can afford to pay with your next paycheck and still have
enough to make it to the next payday.
If you believe a lender has violated the Truth in Lending Act, file a
complaint with the FTC.