Payday Loans

Stay Away from Payday Loans!

Advertisements for payday loans seem to be everywhere. You will find them on the Internet, radio, television or the mail. A number of companies are offering these loans to cash-strapped consumers but beware: easy cash might cost you more than you bargained for!

Payday loans are often disguised by other names. These include: cash advance loans, check advance loans, post-dated check loans or deferred deposit check loans. They are all still 'payday loans'. How does a payday loan work? A borrower writes the lender a personal check for the amount he needs plus the fee charged by the borrower. The lender then gives the consumer this amount less the fee charged for the service.

The fee is a percentage of the check amount or might be a fee charged per amount borrowed, for example you might be charged $100 for every $200. If you decide to extend the loan for a longer period you will be charge a fee for each extension granted. There are several things that consumers need to know about payday loans.

The Truth in Lending Act states that any fees charged for payday loans needs to be disclosed. You should be provided with information pertaining to the exact dollar value of finance charges and the annual percentage rate or APR. This is how much the credit will cost each year. Payday loans do not come cheap and consumers should try to avoid them. When you borrow money, the lender will hold the check until your next payday, you can then decide whether to redeem the check or extend the loan period - which demands a fee.

If you extend payday loans three times, which is not uncommon, your are looking at a hefty APR fee. The good news is that there are several alternatives to payday loans. You could opt for an ordinary credit card with a low APR, take out a loan from a credit union or loan company or ask for a pay advance. You can also consider a small cash advance on a credit card but this may come with a high interest rate attached.

It might also be possible to get a small business loan from a community based organization in your area. So find out about your other options before considering payday loans which are not really cost-effective in the long run. Making a comparison between the APR and finance charge on a credit card offer will help you choose one with low costs.

Before considering payday loans, think about asking your creditors for an extension on your repayments. There may be fees attached to this, like late charges or higher interest rates but it may still work out cheaper than a payday loan in the long run.