Payday Loans: Risks and Alternatives
For the credit impaired and the cash strapped alike, same day cash loans—usually in the form of a payday cash advance—seem to be a convenient and appealing solution to the need for fast cash. Often taken out to help with bill paying, sometimes taken out for a few additional conveniences, same day cash loans or logbook loans are fast enough to obtain . . . but just as fast to get a borrower into unforeseen trouble in trying circumstances.
In fact, no less than the Federal Trade Commission has gotten into the proverbial act. Noting the very prominent advertising same day cash lenders or payday loan providers engage, the FTC hopes to warn potential borrowers that fast same day cash today comes at a rather heavy price to pay tomorrow.
Simply put, you usually will write a personal check payable for the amount you borrow and the fee the lender charges for the loan. That does not always factor the interest on the loan. The lender holds your check until the repayment is due, usually on your next payday but sometimes for as long as a single month. The fees vary from a percentage of the check’s face value—not necessarily the amount you borrowed alone—or a flat rate per increment borrowed.
Should you find yourself strapped regardless of the help your loan brought, you can often extend or roll over the term of your loan by paying the interest alone. But unless your situation improves swiftly enough and you can pay the full loan plus charges off the following month, you could find yourself having paid a hundred percent or more of the actual worth of the original loan in addition to the loan and charges themselves by the time you are able to pay off the original loan.
Suppose you borrowed $100 for two weeks and the charge to borrow is $15. You wrote a $115 check and the lender held it until your next paycheck arrives. However, in the interim, you got socked with costly problems you could not have anticipated, or you took ill and could not work for two or more weeks. You roll the loan over another two weeks, paying $15 more to roll it over. If such circumstances continue and you must continue rolling the loan over, you could end up paying a total of $175—the original amount borrowed, the original fee, and three roll-overs.
If you were hit with an extreme of financial hardship and needed to borrow, more than one lender would provide. Then you hit the hustings looking for further payday loans, you could find yourself trapped in a morass in which you are socked deep enough in debt with climbing charges that it will sap most of your earnings in the immediate term just to retire those same day cash loans that gave you what proved to be extremely temporary relief.
The FTC and other credit counseling services tend now to recommend that if you absolutely need to borrow a little extra to take care of business until your next paycheck, consider short-term small-amount loans from a bank or a credit company. Just keep the amount you need to an absolute minimum if you must resort to a same day cash or payday loan. Then re-train yourself to plan, budget, and monitor your income the better to keep yourself from having to try such a drastic and potentially treacherous route of temporary financial relief in the future.
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