Payday Loans Are Costly

Consider All Options When Looking For Immediate Cash Loans

With the economy still struggling and the outlook in the job market very uncertain, American consumers are looking for sources of immediate cash loans in all areas of the credit industry. Traditional personal loans offered by banks and credit unions have virtually dried up as tougher credit standards have been imposed on borrowers. This leaves many Americans who are struggling with both increased debt and decreased buying power in desperate straits to find quick access to funds.

Non-traditional types of loans are known by many different names. They are often referred to as cash advance loans, check advance loans, or payday loans. Whatever their name, the Federal Trade Commission (FTC) warns consumers that these loans come at a very high price and should be considered very risky.
The premise behind these loans is simple. A borrower will go to whatever lender they have chosen, perhaps a check cashing establishment or a finance company. They will write a personal check for the amount they wish to borrow including any fees and finance charges. The company then gives the borrower the amount of the check in cash, less the fees, and promises to hold the check until the agreed upon date- normally the borrower’s next payday.

The fees and finance charges on these types of quick cash loans can vary. They sometimes are a percentage of the check amount or else a fee based on certain increments of money; so much for every $50 or $100, etc. If the borrower is unable to repay the loan in full by the due date (sometimes as little as two weeks) then the loan is “rolled over” and additional fees and interest are added.

Payday loans are considered like any type of consumer credit and are treated as such. This means that lenders are required to inform you in writing of the finance charge (an actual dollar amount) and the annual percentage rate (APR) before you sign any loan agreement. The federal Truth in Lending Act mandates this and it is important that any borrower be aware of this information prior to signing any paperwork.

Any way you look at it, a payday loan is extremely expensive. For example, if you need a quick cash loan of $100, you would write a check for $115 for the finance company to hold ($100 for the loan amount plus $15 in fees). At the end of the two weeks, the company would deposit your check and collect the $115. But if you are unable to fully repay the loan within that 14 day period, you would then be charged another $15 for an additional two week extension.

This cycle would continue until you are able to fully repay the loan. If you were to rollover your initial loan three times, you would be paying $60 to borrow $100. Annual percentage rates on these payday loans normally amount to 300%-400%. So it’s clear why these loans are considered expensive and dangerous.
There are alternatives to payday loans which should be looked at if you are experiencing serious financial difficulties. It is well worth your time and effort to explore these other possibilities.

  1. Ask your local credit union or a small loan company if they offer short-term loans. Many times they can approve these loans and give competitive rates to consumers. Also consider a cash advance on a credit card, if you have this option. The interest rate can be high, but probably not as high as a payday loan.
  2. Try to find credit offers with the lowest rates. Even among payday lenders rates can vary. You owe it to yourself to shop around to find the lowest APR and the lowest fees.
  3. Contact your creditors and speak with them honestly. Most lenders are more than willing to work with customers who they believe are dealing in good faith with them. Ask about time extensions on your bills. Some car loan companies offer a one or two month grace period of not having to make payments. (They add the missed payments plus interest onto the back of your loan.) The important thing is to speak to your creditors before the situation becomes worse.
  4. Look into credit counseling to help you deal with your finances. Counseling professionals can teach you how tomake a realistic budget, show you how to live within your means, and get you started on a savings plan.Payday loans do provide a much-needed source of immediate cash to financially overburdened consumers. Butbefore signing on the dotted line, be sure to thoroughly investigate all other loan options and if you must use apayday loan, choose carefully. Borrow the least amount of money possible and be certain that you can fullyrepay the loan within the initial time period. This should keep your risk to a minimum.