Why You Should Beware of Pay Day Loans
by Robert Sawtelle
Have you seen the commercials? Cute characters
promise financial prosperity. Happy, professional individuals appear to
regularly visit their corner pay day loan shop as proudly as cashing a check at
the bank. Customers at the grocery store all recommend pay day loans as the easy
solution for a lack of funds.
Could pay day loans be the answer consumers with low bank
accounts have been looking for? Is there any harm in using these services?
Aren't they better than using credit cards or going hungry?
WHY USE A PAY DAY LOAN?
Some individuals reason that paying a bill with borrowed
money is better than receiving bad credit marks because of not paying the bill.
This is understandable. However, some financial institutions are willing to make
the occasional exception if contacted about the situation. Or there may be a
small fee, but not a credit report made.
 Using
it for groceries or other items? Consider the true cost before making a
decision. Compare the cost of using a pay day (or cash advance) loan to the fees
charged for taking a cash advance on your own credit card. Can family help?
Often those who are forced to use pay day loans are not able to repay the loan
by the next pay check and that can lead to a cycle of debt and stress.
WHAT IS THE COST?
Several sources, including a consumer report by the FTC
(Federal Trade Commission) and the CFA (Consumer Federation of America) state
that usual the usual APR is between 350 - 650% with some as high as 780%.
A loan of $100 ranges in cost between $15 - $30. If the loan
is not repaid by the pay date then it can be renewed with another fee due at
each renewal. A loan of $100 can cost $60 in fees after 3 renewals.
WHO BENEFITS?
Based on the warnings issued by federal and consumer
organizations it is clear that using pay day loans or cash advances from these
businesses can often lead to more debt and problems. Some sites were reported to
automatically roll over the loan and only withdraw the renewal fee on the pay
date. Other sites surveyed by the CFA required customers to agree in contract to
not participate in class action suits or to file for bankruptcy.
For those who are having debt problems it is recommended to
seek no- or low-cost credit counseling from a local non-profit organization.
These organizations can help with reducing current interest charges and lowering
monthly payments. If the problem is budget, you should look to a financial
planner who can help you to manage the money you do have and avoid using credit
at all.
 About
the Author: Robert Sawtelle is an author, teacher, and researcher. If you would
like more information for DEBT RELIEF send for his FREE newsletter at the top of
this page. You may contact Robert at
RobertSawtelle@digitaldataplease.com
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