“I just need enough money to get to the day of payment”
“GET MONEY IN CASH NOW! … $ 100 OR MORE … DO NOT WAIT UNTIL THE DAY OF PAYMENT “!
The announcements are on the radio, television, Internet and also in the mail. They refer to payday loans – which are granted at a very high price.
Companies that change checks, finance companies and others give loans for small, short-term and high-interest amounts that have a variety of names: payday loans, cash advance loans, postdated check loans or loans on Deposit of deferred checks.
Generally, the consumer makes a personal check in the name of the lender for the amount they wish to borrow plus a charge. The company gives the borrower the amount of the check and discounts the charge. Charges for payday loans are usually a percentage of the nominal value of the check or a charge charged for a borrowed amount – for example, for every $ 50 or $ 100 borrowed. And, if you extend or terminate the loan – let’s say for another two weeks – you will pay the corresponding charges for each extension made.
Under the federal law called the Truth in Lending Act, which deals with the transparency of loans, the cost of payday loans – as with other types of credit – must be disclosed. Among the information you should receive, in writing, the finance charge (an amount in dollars) and the annual effective rate (APR for its acronym in English) that is the cost of credit on an annual basis.
A cash advance loan secured by a personal check – such as a payday loan – is a very expensive loan. Let’s say you make a personal check for $ 115 to borrow $ 100 for a period of 14 days. The collector of the check or lender agrees to withhold your check until the next payment date. At that time, depending on the particular plan, the lender deposits the check, or you redeem the check by paying $ 115 in cash or write off the check by paying a fee for the extension of the loan for another two weeks. In this example, the cost of the initial loan is a financial charge of $ 15 and an APR of 391 percent. If you write off the check three times, the charge increases up to $ 60 to borrow $ 100.
Alternatives to payday loans
There are other options. Consider the possibilities before opting for a payday loan:
- When you need credit, carefully compare offers. Look for the credit with the lowest APR and consider a small loan from your credit union or small loan company, a salary advance from your employer or a loan from your family or friends. It may also be a possibility to take a cash advance on the credit card, but you may have a higher interest rate than your other sources of funds: find out the terms and conditions before making a decision. A local community organization can also give small business loans to individuals.
- Compare the APR and the financial charge (which includes the loan charges, interest and other types of credit costs) of the credit offers to obtain the lowest cost.
- Ask your creditors more time to pay your bills. Find out what type of charge you will be charged for that service, a late payment fee, an additional finance charge, or a higher interest rate.
- Make a realistic budget, and calculate your daily and monthly expenses. Avoid unnecessary purchases – even small everyday items – everything adds up. Also make some savings – even small deposits can help – to avoid taking loans in case of emergencies, unexpected expenses or other expenses. For example, if you put the charge you would pay for a typical payday loan of $ 300 in a savings account for six months you could have extra money available. This can protect you in case of a monetary emergency.
- See if you have, or may have, overdraft protection on your checking or checking account. If you are using most of the funds in your account regularly and if you make a mistake in checking your checking account (or savings account) overdraft protection can help you protect yourself from future credit problems. Find out the terms and conditions of the overdraft protection.
- If you need help creating a plan to repay your debts to your creditors or to develop a budget, contact the credit counseling service of the local consumer protection agency. There are non-profit groups in all states that offer credit counseling for consumers. These services are available at low cost or free of charge. Also check with your employer, credit union or housing authorities about low-cost or free credit counseling programs.
- If you decide that you should use a payday loan, borrow only an amount you can afford with your next paycheck and calculate that it will be enough to get you to the next pay date.