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Beware, bad credit payday loans?
Could bad credit payday
loans be the answer consumers with low bank accounts have been looking
for? Is there any harm in using these services? Aren't they better than
using credit cards or going hungry?
Have you seen the commercials? Cute characters promise financial
prosperity. Happy, professional individuals appear to regularly visit
their corner pay day loan shop as proudly as cashing a check at the bank.
Customers at the grocery store all recommend pay day loans as the easy
solution for a lack of funds.
WHY USE A PAY DAY LOAN?
Some individuals reason that paying a bill with borrowed money is better
than receiving bad credit marks because of not paying the bill. This is
understandable. However, some financial institutions are willing to make
the occasional exception if contacted about the situation. Or there may be
a small fee, but not a credit report made.
Using it for groceries or other items? Consider the true cost before
making a decision. Compare the cost of using a pay day (or cash advance)
loan to the fees charged for taking a cash advance on your own credit
card. Can family help? Often those who are forced to use pay day loans are
not able to repay the
loan by the next pay check and that can lead to a cycle of debt and
stress.
WHAT IS THE COST?
Several sources, including a consumer report by the FTC (Federal Trade
Commission) and the CFA (Consumer Federation of America) state that usual
the usual APR is between 350 - 650% with some as high as 780%.
A loan of $100 ranges in
cost between $15 - $30. If the loan is not repaid by the pay date then it
can be renewed with another fee due at each renewal. A loan of $100 can
cost $60 in fees after 3 renewals.
WHO BENEFITS?
Based on the warnings issued by federal and consumer organizations it is
clear that using pay day loans or cash advances from these businesses can
often lead to more debt and problems. Some sites were reported to
automatically roll over the loan and only withdraw the renewal fee on the
pay date. Other sites surveyed by the CFA required customers to agree in
contract to not participate in class action suits or to file for
bankruptcy.
For those who are having debt problems it is recommended to seek no- or
low-cost credit counseling from a local non-profit organization. These
organizations can help with reducing current interest charges and lowering
monthly payments. If the problem is budget, you should look to a financial
planner who can help you to manage the money you do have and avoid using
credit at all.
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