Payday Loans: How They Really Work!

Payday loan companies gives the borrower the amount of the check minus their fee (They get their money up front).

Fees charged for payday loans are usually a percentage of the face value of the check or a fee charged per amount borrowed for every $50 or $100 loaned.

A cash advance loan secured by a personal check - such as a payday loan - is very expensive credit.

Let's say you write a personal check for $115 to borrow $100 for up to 14 days. The check casher or a payday loan lender agrees to hold the check until your next payday.

And, if you extend or roll-over the loan - say for another two to four weeks - you will pay A Fee Each Time you get a extension.

Under the Truth in Lending Act, the cost of payday loans - like other types of credit - must be disclosed.

Among other information, you must receive, in writing, the finance charge (a dollar amount) and the annual percentage rate or APR (the cost of credit on a yearly basis) which when you do the math can be very high.

Top 5 Alternatives to Payday Loans!

1. There are other options. Consider these possibilities before choosing a payday loan:

2. When you need credit, shop carefully. Compare offers. Look for the credit offer with the lowest APR - consider a small loan from your credit union or small loan company, an advance on pay from your employer, or a loan from family or friends.

3. A cash advance on a credit card also may be a possibility, but it may have a higher interest rate than your other sources of funds: find out the terms before you decide. Also, a local community- based organization may make small business loans to individuals.

4. Compare the APR and the finance charge (which includes loan fees, interest and other types of credit costs) of credit offers to get the lowest cost.

5. Ask your creditors for more time to pay your bills. Find out what they will charge for that service - as a late charge, an additional finance charge or a higher interest rate.

If you decide you must use a payday loan, borrow only as much as you can afford to pay with your next paycheck and still have enough to make it to the next payday.

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