A payday loan is very expensive credit and should be avoided. Suppose you need to borrow $100 for two weeks. You then write a personal check for $115, with $15 the fee to borrow the money. The check casher or payday lender agrees to hold your check until your next payday. When that day comes around, either the lender deposits the check and you redeem it by paying the $115 in cash, or you roll-over the loan and are charged $15 more to extend the financing for 14 more days. If you agree to electronic payments instead of a check, here’s what would happen on your next payday: the company would debit the full amount of the loan from your checking account electronically, or extend the loan for an additional $15. The cost of the initial $100 loan is a $15 finance charge and an annual percentage rate of 391 percent. If you roll-over the loan three times, the finance charge would climb to $60 to borrow the $100.
Payday loans appeal to younger consumers, people with limited understanding of finances and those who are deep in debt. These payday lenders usually look for people who are high in debt or have a history of using high-risk lenders. Before you decide to take out a payday loan, consider some alternatives such as the ones below or see http://www.badcreditmd.com/
1) Consider a small loan from your credit union or a small loan company. Some banks may offer short-term loans for small amounts at competitive rates. A local community-based organization may make small business loans to people. A cash advance on a credit card also may be possible, but it may have a higher interest rate than other sources of funds: find out the terms before you decide. In any case, shop first and compare all available offers. Shop for the credit offer with the lowest cost. Compare the APR and the finance charge, which includes loan fees, interest and other credit costs. You are looking for the lowest APR. Military personnel have special protections against super-high fees or rates, and all consumers in some states and the District of Columbia have some protections dealing with limits on rates. Even with these protections, payday loans can be expensive, particularly if you roll-over the loan and are responsible for paying additional fees. Other credit offers may come with lower rates and costs.
2) Contact your creditors or loan servicer as quickly as possible if you are having trouble with your payments, and ask for more time. Many may be willing to work with consumers who they believe are acting in good faith. They may offer an extension on your bills; make sure to find out what the charges would be for that service — a late charge, an additional finance charge, or a higher interest rate.
3) Contact your local consumer credit counseling service if you need help working out a debt repayment plan with creditors or developing a budget. Non-profit groups in every state offer credit guidance to consumers for no or low cost. You may want to check with your employer, credit union, or housing authority for no- or low-cost credit counseling programs, too.
4) Make a realistic budget, and figure your monthly and daily expenditures. Avoid unnecessary purchases as even small daily items add up. Build up some savings, even small deposits can help, so that you can avoid borrowing for emergencies, unexpected expenses or other items. If you deposit the same amount you would pay as a fee on a typical $300 payday loan in a savings account for six months, you’ll have extra money available that can help you when financial emergencies hit.
5) Find out if you have or if your bank will offer you overdraft protection on your checking account. If you are using most or all the funds in your account regularly and you make a mistake in your account records, overdraft protection can help protect you from further credit problems. Find out the terms of the overdraft protection available to you, both what it costs and what it covers. Some banks offer bounce protection, which may cover individual overdrafts from checks or electronic withdrawals, generally for a fee. It can be costly, and may not guarantee that the bank automatically will pay the overdraft.
6) If you are in the Military, you instead may be able to obtain financial assistance from military aid societies, such as the Army Emergency Relief, Navy and Marine Corps Relief Society, Air Force Aid Society, or Coast Guard Mutual Aid.
Remember, payday loans are an expensive solution to a money management problem. Try to find an alternative to a payday loans and if you must use one, try to limit the amount. Borrow only as much as you can afford to pay with your next paycheck and still have enough to make it to next payday.
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