We've all been there. The car breaks down and payday is still two weeks away. Or, a bill comes in and is much higher than expected. What can be done when money is tight? Many use payday advance loans to help get them through these tough times. But, are they safe?
A payday loan can become quite complicated. Here is an overview of how they work. If you are tight on cash then you, the borrower, will write a check to the lender for the loan amount plus enough to cover the fees. The lender will give you the loan amount right then. The lender will then agree to hold the check until the designate date, usually your next pay day.
This all sounds pretty simple, but it gets complicated. What if you are not able to pay the loan at the designated date? They will charge you an additional fee plus interest charges on the amount. This can become a very expensive loan.
If your original loan was for $100 and your fee was $15 the total that the loan will cost you is $115 if you pay on time. But, let's say you let the loan roll over three times. With three fees of $15 and an interest rate of 391% your $100 loan ends up costing you $60. And 400% interest rate is low. There are companies that charge well over 1,000%!
There can also be a problem with your bank if they try to cash your check and there are no funds available. You will quickly accrue bank fees and charges.
The Truth in Lending Act requires that all lenders disclose the cost of the loan up front. This includes the upfront fees and the APR that will be charged. Be sure to review all information before agreeing to any loan.
These loans are pretty easy to come by and many do not do a credit check. You can even find these places available online. But are they the best solution?
There are a number of alternatives that you can try before doing a payday loan. First, consider a small loan with your credit union or local loan company. Many banks offer small loans with very competitive rates. Your credit card may also offer a cash advance. But before doing this be sure to find out what the interest rates are. Your best bet is to evaluate all offers and compare the APR.
If you are having a problem paying a bill contact the lender or servicer as quickly as possible. They may be able to give you more time to pay. Many lenders will try to help customers if they believe they are acting in good faith. If this is available to you be sure to find out what additional charges or interest rates may be incurred.
Another option that would also be very helpful in the long term would be to create a realistic budget. Put into your budget all your monthly and daily expenses. By watching where your money is going you can easily cut out small expenses that make a large difference. Let's say you and your spouse eat lunch out every day during the week for $6 each. This is $60 a week and $240 a month!
Put a little money back each month into an emergency account will also help. This money is only for emergencies, like a broke down car or unexpected medical expenses. A vacation does not count as an emergency.
If you are a military serviceman the government requires certain protection for you and your dependants. For these people the interest rate is not to exceed 36%. Typically, most fees are included in this rate. Any credit agreements that do not honor the regulations set up by the Department of Defense rule are void.
Payday loans can become quite costly and dangerous. Try to find a better alternative that will help you in your situation. If you must make a payday loan only borrow enough that you can pay back next month and still have enough money left to get through the month.
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