Payday loans might be the solution that people with low bank balances have been looking for. What could go wrong if I use these services? Can't you use credit cards or go hungry instead?
You must have seen the ads. Cute characters promise good luck with money. People who look happy and successful seem to go to the payday loan shop around the corner as often as they go to the bank to cash a check. Customers at the grocery store all say that pay day loans are an easy way to get money when you don't have any.
WHY USE A PAY DAY LOAN?
Some people think that it's better to pay a bill with borrowed money than to get bad credit because they didn't pay the bill. This is easy to understand. But if you talk to them about the situation, some financial institutions are willing to make an exception sometimes. Or, you might have to pay a small fee, but your credit report won't be made.
Putting groceries or other things in it? Before making a choice, think about what it will really cost. Compare how much it costs to get a pay day loan (also called a "cash advance") to how much it costs to get a cash advance on your own credit card. Can relatives help? People who have to use pay day loans often can't pay them back by the time they get their next paycheck, which can lead to a cycle of debt and stress.
HOW MUCH DOES IT COST?
Several sources, such as a report from the Federal Trade Commission (FTC) and the Consumer Federation of America (CFA), say that the average APR is between 350 and 650 percent, and some are even as high as 780 percent!
Costs for a $100 loan range from $15 to $30. If the loan is not paid back by the due date, it can be renewed, but there will be a fee each time it is renewed. After 3 renewals, the fees on a $100 loan can add up to $60.
WHO BENEFITS?
Based on the warnings from the government and consumer groups, it is clear that using pay day loans or cash advances from these businesses can often lead to more debt and problems. It was said that some sites would automatically renew the loan and only take out the renewal fee when the loan was due. Other sites the CFA looked at required customers to sign a contract saying they wouldn't join class action lawsuits or file for bankruptcy.
People who are having trouble paying their bills should look for credit counselling from a non-profit group in their area. These groups can help you lower your monthly payments and lower the interest you're paying now. If your budget is the problem, you should talk to a financial planner who can help you manage the money you already have and stay away from credit.
