Is The Use Of "Pay Day" Loans Wise?

Could pay day loans be the answer consumers with low bank
accounts have been looking for? Is there any harm in using
these services? Aren't they better than using credit cards or
going hungry?

You've seen the commercials. Cute characters promise financial
prosperity. Happy, professional individuals appear to regularly
visit their corner pay day loan shop as proudly as cashing a
check at the bank. Customers at the grocery store all recommend
pay day loans as the easy solution for a lack of funds.

WHY USE A PAY DAY LOAN?

Some individuals reason that paying a bill with borrowed money
is better than receiving bad credit marks because of not paying
the bill. This is understandable. However, some financial
institutions are willing to make the occasional exception if
contacted about the situation. Or there may be a small fee, but
not a credit report made.

Using it for groceries or other items? Consider the true cost
before making a decision. Compare the cost of using a pay day
(or cash advance) loan to the fees charged for taking a cash
advance on your own credit card. Can family help? Often those
who are forced to use pay day loans are not able to repay the
loan by the next pay check and that can lead to a cycle of debt
and stress.

WHAT IS THE COST?

Several sources, including a consumer report by the FTC
(Federal Trade Commission) and the CFA (Consumer Federation of
America) state that the usual APR is between 350 - 650% with
some as high as 780%!

A loan of $100 ranges in cost between $15 - $30. If the loan is
not repaid by the pay date then it can be renewed with another
fee due at each renewal. A loan of $100 can cost $60 in fees
after 3 renewals.

WHO BENEFITS?

Based on the warnings issued by federal and consumer
organizations it is clear that using pay day loans or cash
advances from these businesses can often lead to more debt and
problems. Some sites were reported to automatically roll over
the loan and only withdraw the renewal fee on the pay date.
Other sites surveyed by the CFA required customers to agree in
contract to not participate in class action suits or to file
for bankruptcy.

For those who are having debt problems it is recommended to
seek no- or low-cost credit counseling from a local non-profit
organization. These organizations can help with reducing
current interest charges and lowering monthly payments. If the
problem is budget, you should look to a financial planner who
can help you to manage the money you do have and avoid using
credit at all.


About The Author: Yvonne Volante, an author with
http://www.debtorelief.com has written about debt and the
positives and negatives of debt. Visit the site at
http://www.debtorelief.com for great resources about debt and
debt relief.