Beware Of Bad Credit Payday
Loans
by: Jeff Schuman
Could bad credit payday 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?
Have you 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 usual 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.
