Nov 14, 2012: Pay day loans are various kinds of small cash advances taken for a very short duration. They are very expensive and typically must be repaid in full by the next pay day of the borrower. These are also known as cash advance loans, check advance loans, or deferred deposit check loans.These loans offer cash advances when money is tight, but they do not adequately inform the borrower of all of the risks they could face. These risks include high borrowing fees, high interest rates, and high security risks involving personal information.
What are the fees?
The fees charged for payday cash advances may range anywhere from $10 per $100 up to $30 per $100 borrowed. The amounts available for loan typically lies in the range of $200 to $2500, with $500 being the most frequently borrowed amount.
How does it work?
Generally a post-dated personal check for the amount of the loan plus the fee is written to the loan company. Or, if using an online service, we may allow the loan company to take the amount of the loan plus the fees on the loan’s due date. The date on the check is the date by which we have to take one of the following three actions:- We can pay the lender with cash equal to the amount of the check.
- The lender may be allowed to deposit our check automatically.
- Or, we could roll the loan over and pay the fee again.
Rates of interest?
The high interest rates on these types of loans are another very serious risk. The most frequent rate reported is 650% annual interest rate if the loan is repaid in two weeks.However, one could end up paying as high as 1000% annual interest rate in some instances! Trying to pay these extremely high interest rates could easily lead to a situation where we write a check that bounces. If this occurs, both the bank and the lending company may charge a bounced check fee. In some states, the lending company may even threaten to prosecute us for writing a bad check.
Beware of lack of security!
These days many payday cash advance companies operate via the Internet. We simply have to fill out an online form or fax a completed application. These applications contain such personal information as bank account numbers, Social Security numbers, recent bank statements, copies of blank checks and signed paperwork. We should verify that these websites are offering authentic privacy and appropriate security during their Internet transactions involving personal information. The fine prints of the contracts may also authorize them to share information with third party firms for marketing purposes.How to avoid?
Yes there are other alternatives. We should seriously consider all the possibilities before choosing a payday loan.- Speak frankly with the creditors and try to negotiate with them directly for a reduced payment plan or some extra time. There may be a little fee involved but it may still be much safer and cheaper than payday loans.
- Shop for a low APR credit card with a 0% balance transfer option.
- Find out if your employer may give you a loan. In fact many employers do extend a helping hand and give such loans at low interest rates to its employees.
- Flip through the yellow pages and look for credit unions in the neighborhood. They may be able to help you out with a loan having a low interest rate.
- You may contact your local consumer credit counseling service. There are non-profit groups in every state that offer credit guidance to consumers. These services are available at little or no cost.
- Last but not the least, if payday loan is the only option, read and be aware of the fees, compare the rates from several different lenders before making a decision.
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