LANGLEY AFB, VA. –
Check cashers, finance companies and others are making small, short-term, high-rate loans that go by a variety of names: payday loans, cash advance loans, check advance loans, post-dated check loans or deferred deposit check loans.
A cash advance loan secured by a personal check, such as a payday loan, is very expensive credit.
Usually a borrower writes a personal check payable to the lender for the amount he or she wishes to borrow, plus a fee. The company gives the borrower the amount of the check minus the fee. Fees charged for payday loans are usually a percentage of the face value of the check. If the loan is extended or “rolled over,” the borrower pays the fees for each extension.
Under the Truth in Lending Act, the cost of payday loans, like other types of credit, must be disclosed in clear and conspicuous writing on a form that the borrower can keep.
Among other information, the finance charge (a dollar amount) and the annual percentage rate (the cost of credit on a yearly basis) must be clearly disclosed, in writing.
Let’s say you write a personal check for $115 to borrow $100 for up to 14 days. At that time, depending on the particular plan, one of three things can happen: the lender deposits the check, you redeem the check by paying the $115 in cash or you roll over the check by paying a fee to extend the loan for another two weeks. If you roll over the loan three times, the finance charge would be $60, just to borrow $100!
Consider other possibilities before choosing a payday loan:
- When you need credit, look for the credit offer with the lowest APR and finance charge. Consider a small loan from your credit union or small loan company, an advance on pay from your employer, or a loan from family and friends. A cash advance on a credit card also may be a possibility, but it may have a higher interest rate than your other sources of funds. Also, a local community-based organization may make small business loans to individuals.
- Ask your creditors for more time to pay your bills. Find out what they will charge for that service.
- Make a realistic budget, and figure monthly and daily expenditures. Avoid unnecessary purchases. Also, build some savings to avoid borrowing for emergencies.
- Find out if you have, or can get, overdraft protection on your checking account. If you are regularly using most or all of the funds in your account and if you make a mistake
in your checking (or savings) account ledger or records, overdraft protection can help protect you from further credit problems.
- If you decide you must use a payday loan, borrow only as much as you can afford to pay with your next paycheck and still have enough to make it to the next payday.
If you need financial assistance contact the Airman and Family Readiness Center or the Personal Financial Management Program on base.
If you believe a lender has violated the Truth in Lending Act, you can file a complaint with the Federal Trade Commission at: http://www.ftc.gov.