Payday Loans Are Dangerous to Your FinancesThe ads are on the radio, television, the Internet, even in the mail. They refer to payday loans, cash advance loans, check advance loans, post-dated check loans, or deferred deposit loans. The Federal Trade Commission, the nation’s consumer protection agency, says that regardless of their name, these small, short-term, high-rate loans by check cashers, finance companies and others all come at a very steep price. Here’s how a PayDay Loan WorksA borrower writes a personal check payable to the lender for the amount the person wants to borrow, plus the fee they must pay for borrowing. The company gives the borrower the amount of the check less the fee, and agrees to hold the check until the loan is due, which is usually the borrower’s next payday. Sometimes, with the borrower’s permission, the company deposits the amount borrowed — less the fee — into the borrower’s checking account electronically. The loan amount is due to be debited the next payday.The fees on these loans can be a percentage of the face value of the check — or they can be based on increments of money borrowed: say, a fee for every $50 or $100 borrowed. The borrower is charged new fees each time the same loan is extended or “rolled over.” The federal Truth in Lending Act treats payday loans like other types of credit: the lenders must disclose the cost of the loan. These lenders must give you the finance charge (a dollar amount) and the annual percentage rate (APR — the cost of credit on a yearly basis) in writing before you sign for the loan. The APR is based on several things, including the amount you borrow, the interest rate and credit costs you’re being charged, and the length of your loan. Watch this video on payday loans and find out how devastating they can be. I highly recommend you look at other alternatives. These loans can lead to a quick trip to bankruptcy.
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