Payday Loans:
Credit at a High Price
You've probably heard or seen ads for payday loans. They're everywhere: radio, television, billboards, the Internet, even in your mailbox. You may even know someone who used a payday lender. Although payday loans provide a quick way to get money, they are really expensive and will only worsen your financial situation in the long run.
What are payday loans?
Payday loans offer short-term credit at high rates. They are typically made by check cashers and other companies. You may even find them at places like liquor stores and pawn shops.
To receive a payday loan, you write a check for the amount you want to borrow, plus a fee. The company then gives you the amount of your check, minus the fee. When the next payday rolls around, you have several options:
- Allow the company to cash the check you wrote for the loan
- Go to the company and pay off the loan
- Extend the loan by paying another fee (the most expensive option)
Payday lenders often charge between $15 to $50 for every $90 borrowed. If you extend or "roll-over" the loan, you must pay the fees for each extension. This could bring the Annual Percentage Rate (APR) of your loan to as high as 400% – 800%. At this high rate, you could easily end up using most or all of the money you borrowed to pay the costly fees.
