It bares repeating that the current economic state lends itself to many things. With that said, there is no shortage in advertisements claiming to tide you over until payday, with a payday loan. And, who doesn’t want to receive cash before their payday? The thought sounds really good, but is it?
Strapped for Cash
A payday loan may seem like a great option at first glance, but it actually is a high-interest loan that is borrowed against your next paycheck. With cleverly disguised names, payday loans also are referred to in many ways, including: post-dated check loans, cash advance loans, check advance loans or deferred deposit loans.
How do payday loans work? You can receive a payday loan in one of two ways. According to The Federal Trade Commission, the borrower writes a personal check made payable to the lender for the amount that needs to be borrowed, a fee is also tacked-on for borrowing the money. The company then gives the borrower the amount of the check minus the fee, and agrees to hold the check until the loan is due, which usually is on the borrower’s next payday.
Moreover, The Federal Trade Commission, the nation’s consumer protection agency, says, “Regardless of their name, these small, short-term, high-rate loans by check cashers, finance companies and others all come at a very high price.”
Another option is the company deposits the amount borrowed, less the fee, into the borrower’s checking account, electronically. The debited amount comes out the next payday. Fees on loans can be a percentage of the face value of the check or they can be based on increments of money borrowed. Just figure getting a fee for every $50 to $100 borrowed. The lender also charges new fees every time the same loan is “rolled over” or extended.
The Nitty-Gritty Truth
What you should know is that the federal Truth in Lending Act (TILA) treats payday loans just like other types of credit. TILA, a federal law, was enacted in 1968, with the consumers’ best interests in mind. Still with me? The primary purpose of TILA is to protect consumers in their dealings with lenders and creditors.
Case in point, payday lenders are obligated to disclose the finance charge and the annual percentage rate (APR) in writing before you even sign your name on the dotted line for your loan. And, your APR is influenced by several factors, the length of your loan, the amount you borrow, the interest rate and credit costs being charged. With all these points taken into consideration, be very leery of payday loan scams.
How Not to Owe During Payday
If after learning the facts about payday loans you decide it is not for you, there are other options to consider. For example, you can:
• Inquire as to whether you can receive an advance from your current employer;
• Become well-versed in Human Resources Administration (HRA) emergency assistance programs; this includes cash assistance, medical assistance, food stamps and job opportunities;
• Consider looking into a small loan from your bank or credit union. These types of loans typically carry lower interest rates than payday loans do;
• Credit card providers offer a multitude of services or its customers and cash advances just may be one of them. Be advised that getting a cash advance may have a higher interest rate than a credit union or bank loan, but it’s less than a payday loan;
• See if family members or friends can give you a small loan, with terms that are mutually agreed upon.
You Decide on the Loan
Things should, however, become much clearer after you get the facts with regard to payday loans. Only you know if a payday loan is a viable option; overall, weigh your options before providing your “John Hancock.”