Instant Cash - Beware of Pay Day Loans

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Instant Cash - Beware of Pay Day Loans
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.

Could pay day 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?

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.

Scott Morris manages the site on financial planner.

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Securing A Loan - Advice From The Pros

Useful Ideas If You Are Looking For A Loan

The tips below are sound advice when looking to secure a loan for, say, the purchase of a car.

If you already have a loan and are wanting to replace the car and take out a new one remember that the previous loan is in your name and it's therefore your responsibility to make sure that it's paid off. If the dealer promises you that he will take care of this, make sure that you get it in writing from him that he will pay it off within ten days. Some dealers have been known to promise to do this verbally but have then failed to do so and then denied all knowledge of the matter leaving the client to pay off the old loan as well as the new.

If there are any manufacturer deals or rebates on offer, they are often very beneficial but watch the long term interest rates. Very often they shoot up after the 'honeymoon' period but if you're on the ball you can benefit from the initial offer and then transfer the loan to a company that offers a lower rate.

If you have a bad credit history the chances are that you will either be turned down or the interest rates quoted to you will be higher than normal. It's quite possible to do your own checks so that you have an idea of how you will score and there are also companies that will help you to repair your credit history. There's always (well, nearly always) a way round these things and take heart that only about 7% of the population qualify for the best rates that are advertised.

Some dealers try to insist that you fill in a credit application form even if you're paying cash. They will quote the Patriot Act and try to intimidate you into giving them a lot of personal information and this is what they're after because they can sell it on to other companies. Don't become so emotionally attached to whatever you are wanting to buy that you feel you can't walk away. It's almost always a buyer's market.

Know and understand everything about the model that you're buying. Don't be hoodwinked into believing that standard benefits have been added specifically on this car. Know the specification of the model, the cost as new and what similar cars are achieving in magazines and papers locally.

If you do apply for credit with the dealer and need to put down a deposit while you wait to hear if you've been successful, don't use cash. If you use a credit card you'll be able to dispute the payment and stand a chance of retrieving your money whereas the dealer can simply refuse to pay back the cash.

Don't forget the length of the loan. Sometimes the offer a dealer may put before you can look very encouraging but it may be over a far longer period than another company. Look carefully...

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Instant Cash - Beware of Pay Day Loans
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