Short on cash? Need just a little more money to get you through to payday?
Step right up and take out a payday loan. Payday loan cash advances will provide you with the $300 to $400 you need to get by until your next paycheck arrives. The price? At most payday lenders interest rates from 300% to 1,000% APR (Annual Percentage Rate) on up.
Alternatively known as cash-advance loans, post-dated check loans, or delayed deposit check loans, payday loans are a star product at check-cashing outlets, pawn shops, or Web sites. Touted as a convenient financial Band-Aid, they exact exorbitant fees from consumers.
How it Works
Typically, a customer writes a postdated personal check to a check casher for the amount he or she wishes to borrow -- plus the fee. The check casher holds the check until the customer's next payday, say two weeks down the road, at which time the consumer can redeem the check with cash or a money order; allow the check to be deposited; or renew, or roll over, the loan by paying an additional fee.
Companies frequently assess fees of $10 to $35 per $100 borrowed. So, if the fee is $20 per $100, a customer needing $100 would write a postdated check for $120, dated 14 days down the road.
Stated as an APR, the fees are shocking. According to a 2005 Public Interest Research Group (PIRG) report on the payday loan industry, the most common APR on $300 borrowed for 14 days was 521%. The fees climb even higher if a consumer rolls over the payday loan. Before long, escalating charges dwarf the original balance.
Your First Stop for Loans Always Should be Your Credit Union
Say a member pays $360 to borrow $300 for one month from a payday loan company. If he were to take out a $300 unsecured personal loan at 15% APR from his credit union, he would pay only $3.82 in interest if he pays back the loan within a month. "You'd end up paying 16 times more for the payday loan than the credit union loan," says Mike Schenk, vice president of economics and statistics at the Credit Union National Association (CUNA
). "That's before you take into account any other fees you might be charged."
If you're short on cash, contact
a Coosa Pines FCU loan officer to explore your options before you turn to a payday loan. If you're already caught up in payday or cash adavance loans, your loan officer may be able to help you break the cycle.
For more help managing your finances, or to speak to a financial counselor, use BALANCE
, a free service from Coosa Pines.