Fraud Tip of the Day - March 1
Payday Loans come with a price
A variety of financial companies offer high interest, short-term loans often referred to as payday loans. They are also known as: post-dated check loans, check advance loans, cash advance loans, or deferred deposit check loans.
How "Payday Loans" Work
If you qualify for one of these loans, and almost everyone does, you write a personal check to the lender for the amount you'd like to borrow plus any fees the payday lender charges for their services.
Payday loan fees are often calculated as percentage of the check's value or are pegged to the amount being borrowed. Once the fees are calculated, they are subtracted from the amount you wrote the check to the lender for. This new total is what the payday lender hands you and you walk away with.
If you for some reason are unable to pay back the loan and need to extend the loan, or roll it over, you end up pay the original loan fee each time you request an extension. Think about this for a moment and how much these fees could add up to.
A Cycle of Debt
If you need a $500 loan and the loan amount is 15% the check you write will be for $575
If you need an extension you have to pay an additional $75 (The 15% fee). Now you've paid $150 to borrow $500!
If you need two more extensions and pay another $150, you have paid a total of $300 to borrow $500.
Payday Loans Target the Poor
As you can see, the fees add up quickly. What's so sad is that the companies offering these loans target those that can least afford them. Payday loans should never even be an option. If you need a loan try your credit union, a lender that doesn't offer payday loans, ask your employer for help or go to your family and friends.
Anytime you think a payday loan is your last resort remember how the fees add up. If you need the money that badly, you certainly can't afford to throw it away.
