The Low Down on Payday Loans

If you knew somebody was going to charge you 1000% annually in interest would you still borrow from them? The interest on payday loans, sometimes called cash advance loans can easily approach this figure. Now don’t get me wrong these loans can have their time and place, but for the most part they are a bad idea.

In the case of a returned check fee or a late fee, the cash advance loan is actually cheaper, plus the loan will save you from doing damage to your credit in this case, but as a general rule payday loans are a mistake.

To get the loan you give the cash advance company a check that they will hold until an agreed upon date (it used to be 2 weeks, but some will let you go longer now). At this time the lender will deposit the check into your checking account (some companies require you to actually buy the check back with cash).

This is the standard arrangement for most of these companies, but these companies have found new ways to keep you coming back. Payday loan companies are now available online. You don’t even have to get off the couch to get money. Most of these companies will now let you extend the amount of time you borrow the money that is for a fee. Now, you can even find payday lenders that have introductory rates for the first time you borrow.

These cash advance companies make a lot of money or they would not be popping up on every corner. The unfortunate thing is once you start using these companies you usually get into a cycle that is hard to get out of. If you borrow an extra $400 that means you will have to come up with an addition $400 to pay them back. Most people are not able to do that and they will borrow that same $400 every two weeks, for a $60 charge. After a years time you will have paid $1560 in fees and you will still owe the original $400. So you do the math on this one. Do payday loans sound like a good deal?

Marjorie Salada is the owner of debtmanagement1.com, a website that contains information on debt consolidation, debt settlement, debt counseling and how to manage credit card debt.