WomanScope NewsMagazine : Payday Loans

Medallio Green
May 16, 2012
Filed under Finance

Times are hard and for quick cash Payday Loans (i.e cash advance or check advance loans, deferred deposit check loans or postdated check loans) are becoming more popular.? A Payday Loan is when an individual(s) borrows a small amount of money for a short period of time at a very high rate of interest. Typically the borrower writes a post-dated check of the amount they wish to borrow, plus a standard fee in exchange for cash. The Payday Loan is all about putting your mind at ease by not cashing your check until the date you?ve disclosed. The problem is that by that date, the interest rate has already increased.[1]

The Truth in Lending Act requires certain loan information be given before the loan is even made for the borrower. Here is the information that the borrower must receive:

• The dollar amount of what the loan will cost you or the amount of the finance charge.
• The annual percentage rate (APR), which is the cost of the credit to you that is usually stated in a percentage on a yearly basis.
• Make sure the disclosure terms are given to you in writing before anything is accepted or signed.[2]

For those mathematicians out there here is an example of what to expect. You, the borrower, borrow $100.00 with the understanding that the payment will be due in the next two weeks. You write a check for $115.00 (amount of loan plus standard fees), the lender holds onto the $15.00 until your next payday or when the loan rolls over into the next loan period. The lender takes $15.00 and you receive $100.00, equaling an APR of almost 400 percent.? If the loan term is extended to three more two-week periods then you?ll pay $160.00 for that $100.00 loan. Sounds like a very sticky situation.

If you are in a financial pickle there may be a few practical alternatives such as:

• Contact your lenders or creditors to inform them that they you may be late paying a bill. Often times you?ll be able to work out an alternative payment plan.
• Look for low-cost loans or credit cash advances. These lender sources for personal loans include credit unions and smaller loan or finance companies.
• Seek advice from a consumer credit counseling service.
• Save money ? if possible ? for any extra expenses that will pop-up when you least expect it.
• See about overdraft protection plans for your checking account ? this could save you fees, and bounced checks.

In conclusion, Payday Loans are a quick source of income, but they come with high interest rates. Times are hard, but should we really allow dollar signs to cloud our judgment? These loans are advertised to bring peace of mind, but in the end you?re giving up so much more. The best advice in this situation is not to use a Payday Loan provider.? There are easier and less financially straining ways to come up with quick cash. Remember that if you do end up using these loan services don?t forget to get everything in writing, stay on top of your payments, and pay attention to the APR.

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Investopedia.com. Payday Loan, 2012. http://www.investopedia.com/terms/p/payday-loans.asp#axzz1oS8z62NN. (March 2012).

Lawyers.com. Pay Day Loan Scams: Required Disclosures, 2011. http://consumer-law.lawyers.com/consumer-fraud/Pay-Day-Loan-Scams.html. (March 2012).

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[1] Investopedia.com. Payday Loan, 2012. http://www.investopedia.com/terms/p/payday-loans.asp#axzz1oS8z62NN. (March 2012).

[2] Lawyers.com. Pay Day Loan Scams: Required Disclosures, 2011. http://consumer-law.lawyers.com/consumer-fraud/Pay-Day-Loan-Scams.html. (March 2012).

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