Jan. 10, 2013
-- A payday loan or a cash advance is secured by a personal check or paid by electronic transfer is very expensive credit. A borrower writes a personal check payable to the lender for the amount the person wants to borrow, plus the fee they must pay for borrowing. The company gives the borrower the amount of the check less the fee, and agrees to hold the check until the loan is due, usually the borrower’s next payday.
Lets say a consumer borrows $100 for two weeks. The person will then write a personal check for $115, with the $15 being the fee to borrow the money. The check casher or payday lender agrees to hold the check until the consumer's next payday. When that day comes around, either the lender deposits the check and the consumer redeems it by paying the $115 in cash, or the person can roll-over the loan and are charged $15 more to extend the financing for 14 more days. The cost of the initial $100 loan is a $15 finance charge and an annual percentage rate of 391 percent. If the loan is roll-overed three times, the finance charge would climb to $60 to borrow the $100.
Before a consumer decides to take out a payday loan, they should consider some alternatives. Consumers can learn about the various options available to them by visiting http://www.badcreditmd.com/payday_loans_for_bad_credit.html
The bottom line on payday loans is to try to find an alternative. If a consumer must use one they should try to limit the amount. They should only borrow as much as they can afford to pay with their next paycheck and still have enough to make it to next payday.
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