Payday Loans

Pay-Day Loans Cost More Than You'd Expect Recently you may have seen ads o­n the radio, television, the Internet, even in the mail offering immediate cash advances in exchange for paychecks. These ads are referring to payday loans - which come at a very high price. Certain finance companies 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. How do these loans work?   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 are charged for payday loans.   Usually   the fees are a percentage of the total value of the check or a fee charged per amount borrowed.   Also you may extend the loan, for another two weeks for example, but you will pay the fees for the extension. The cost of payday loans must be disclosed at the time the loan is taken out.   You must receive also receive, in writing, the finance charge (a dollar amount) and the annual percentage rate or APR (the cost of credit o­n a yearly basis). Be warned, a cash advance loan is a very expensive way to borrow money.    Here is an example of how the finance charges can add up after just a short time. 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 $100. Here are some possible options other than taking a payday loans •  Shop around before committing to o­ne type of credit. C ompare 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 an extension in order to pay bills.    It may be less expensive to pay the late charges or penalty fees than to take out a payday loan.    If your creditors will give you more time to pay, without charging you added interest, you will save a lot of money when compared to the high cost of payday loans   •  Budget yourself realistically.   Keep track of your daily, weekly, and monthly expenses.   Do not purchase things you do not need, no matter how small.   Also, build some savings to avoid borrowing for emergencies, unexpected expenses or other items •  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 overdraft protection.   •  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. The best way to avoid taking out a payday loan is to budget yourself to live within your means.   Try to spend as little as possible to ensure that you will be able to pay   all your creditors o­n time.