Stay Away from Payday Loans

Don't Rely on Payday Loans

Your car breaks down and you need a couple of hundred dollars to get it fixed. But you have no money in the bank and won’t get paid for another 10 days. Plus you have to have the car to get to work. What to do?

Many people turn to payday loans. The requirements are minimal, it can be done online and you can get your money the next day.

It sounds great, but there is a cost. And like in so many other instances where lower income people are involved, the cost is exorbitant.

A payday loan is a short term loan, usually lasting two weeks to a month. In most cases the only requirements are:

• That you’ve held your job for the last 2 or 3 months;
• That you make at least a $1000 a month – some lenders might require $1500; and
• That you have a valid bank account.

Paperwork is minimal and usually can be done by fax. If you qualify the money will be deposited in your checking account the next day.

> At the agreed end of the term, the lender will deduct the amount of the loan, plus its fee from your checking account.

Fees can vary from $10 to as much as $30 per hundred dollars borrowed.

If you use a relatively low cost lender, one that charges $10 per hundred borrowed, your annual APR can be about 260%, if you are being charged on a bi-weekly basis. With some lenders the APR can get as high as 700%.

If what I see on the Sopranos TV show is true, Tony Soprano only charges a point a week, or only 52%. But the payday loan lender hopefully won’t break your knee caps if you’re late.

As a matter of fact, the payday lender would probably be very happy to roll over your loan, just deducting his fee every pay period.

If you have to resort to this type of loan, you really should examine where you are going in your life. But before we get to that, if you are going to borrow this way, at least try to find the cheapest lender.

Like any other lender, payday lenders have to disclose the APR of the loan. This makes it easier to compare the rates being charged. Make sure the APR includes all fees charged. If not, adjust the rate up accordingly.

Read all the paperwork you get and make sure everything is correct.

And don’t make a habit out of this kind of borrowing.

You really have to adjust your spending or make more money if you now have to rely on payday loans to live.

Create a realistic budget that includes all your essentials, like rent, utilities and food. Try to cut out all other unnecessary expenses.

Ask your employer for extra training for a higher paying job or check you local community college to see what kind of job training they are offering.

Go to the library and find training manuals for jobs you might be interested in.

Look for part time work or start a business while you keep your day job.

Meet with a credit counselor and see what he suggests. Maybe he can reduce your debts or payments for you.

See if you can find a bank or credit union that will offer you either a short term loan or maybe a debt consolidation loan, so you have some money in the bank when the need arises.

You have to face the fact that you’re supposed to be an adult and be responsible for your own decisions and their consequences.

You have to take control of your life and get it back in order. Payday loans are a road to financial ruin.

For more on the evils of payday loans, read Payday Loan Trap.

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