We've all been there. The car breaks
down and payday is still two weeks away. Or, a bill comes in and is much higher
than expected. What can be done when money is tight? Many use payday advance
loans to help get them through these tough times. But, are they safe?
A payday loan can become quite
complicated. Here is an overview of how they work. If you are tight on cash
then you, the borrower, will write a check to the lender for the loan amount
plus enough to cover the fees. The lender will give you the loan amount right
then. The lender will then agree to hold the check until the designate date,
usually your next pay day.
This all sounds pretty simple, but
it gets complicated. What if you are not able to pay the loan at the designated
date? They will charge you an additional fee plus interest charges on the
amount. This can become a very expensive loan.
If your original loan was for $100
and your fee was $15 the total that the loan will cost you is $115 if you pay
on time. But, let's say you let the loan roll over three times. With three fees
of $15 and an interest rate of 391% your $100 loan ends up costing you $60. And
400% interest rate is low. There are companies that charge well over 1,000%!
There can also be a problem with
your bank if they try to cash your check and there are no funds available. You
will quickly accrue bank fees and charges.
The Truth in Lending Act requires that all lenders disclose the cost of the loan up front. This includes the upfront fees and the APR that will be charged. Be sure to review all information before agreeing to any loan.
The Truth in Lending Act requires that all lenders disclose the cost of the loan up front. This includes the upfront fees and the APR that will be charged. Be sure to review all information before agreeing to any loan.
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