Do you know the side effects of payday loans and cash advances? Pay day loans and cash advances carry heavy weights when compared to how easy they are to get. Advertisers will not tell borrowers how long it can take them to pay off their loans as well as the interest rates they come with.
Side Effects Of Payday Loans And Cash Advances : How Do Payday Loans Work?
An individual needs $200 before his next payday. He meets a lender and gives him a postdated check for the amount of the loan plus the fee. The lender either calculates payday loan fees as a percentage of the amount borrowed or a set amount per $1 borrowed. Each lender chooses the method to use.
Also, writing the check, the lender gives the cash or automatically deposits the loan into the borrower’s checking account. On his payday, the lender cashes his check unless he extends the loan. Extending the loan, also known as “rolling over” the loan, costs another fee and allows you to keep the loan for another period. The extension as well comes with a fee.
Side Effects Of Payday Loans And Cash Advances : What Does It Cost?
It is important to know that the Truth in Lending Act demands all lenders to disclose the cost of the loan in writing before you sign any agreement to take the loan. They must tell you everything about the finance charge and APR.
Can you imagine that Cashcentral.com, charges $17.50 per $100 borrowed. This means that on a 10-day loan, your effective APR is close to 640%. Completely exploitative. This means that if an individual takes a 14-day $300 loan and couldn’t repay it for two months, he will pay $210 in payday loan fees. According to Center For Responsible Lending, a payday borrower ends up paying $793 in interest on a $325 loan if he continuously roll over the loan.
Who Are The Victims?
The victims are usually the poor people. They exploit and take advantage of them. You can hardly find a payday loan shop in upper or middle class residential areas. Other victims they have are the military personnel, a Yahoo Maps search resulted in 12 cash advance and payday loan businesses within five miles of Fort Knox, Kentucky, a U.S. military post.
What Can You Do?
Instead of taking payday loans, consider the following options :
- Emergency hardship programs.
- Consumer credit counseling.
- Small loan from your bank or credit union.
- Hardship payment plan from your creditors.
- Cash advance from your credit card.
- Small loan from a family member or friend.
- Payday advance from your employer.