Pay Day Loans: NEVER a good idea...

One of the most frequent creditors that I notice on many of my clients petitions is the payday loan company. More often than not, my clients tell me how they are unable to pay the loan and how the balance has skyrocketed out of control.


Payday loans, also known as cash advance loans, check advance loans, postdated check loans, or deferred-deposit check loans, may seem like an easy solution to a temporary cash shortage, but for many people, payday loans are the beginning of a vicious cycle that they find difficult, if not impossible, to get out of.

This is how they usually work: Client borrowed from a payday lender who charged her $60 for up to 15 days. Her plan was to repay the money when she received her next paycheck in two weeks. When the time came, she still didn't have enough money to pay off the amount she borrowed plus the $60 fee, so she paid an additional $60 fee and rolled her payday loan over for another two weeks. The cycle continued, and at the end of six months she had paid $720 in fees and still owed the original $200. Her chances of repaying this debt are now slim.

The interest rates on payday loans can range from 300% to over 1,000%. Even a relatively high-interest rate credit card has a much lower rate than a payday loan.


Payday lenders target:

* younger consumers with limited understanding of finances
* consumers who are deeply in debt
* consumers who are struggling to meet their day-to-day financial obligations
* those who have a history of using high-risk lenders

How Do Payday Loans Work?

Typically, you request a payday loan for a short period of time, usually one to four weeks. You show proof of employment and identification and write a postdated check for the full amount of the amount you borrowed plus the payday loan fee, which you leave with the lender. The fee may seem reasonable: $15 to borrow $100 for two weeks, for example. However, the annual interest rate on that loan is 360 percent. It may seem worth it if you're in a bind, but people often extend the loan month after month and end up paying grossly inflated annual interest rates and end up in worse shape than when they borrowed the money in the first place.

Are Their Options to Payday Loans?

The US Federal Trade Commission’s recommendation is to avoid payday lenders. They recommend these alternatives for safer and less expensive loans:

* Contact a local credit union for a small loan.
* Ask for a pay advance from your employer.
* Consider a loan from family or friends and get the terms of the loan in writing.
* Use a credit card advance.
* Request additional time to pay the bill from your creditors instead of taking a payday loan.
* Find out what your options are before you need a short-term loan.
* Look into overdraft protection on your bank account so if you don't have enough funds to cover a check you write, the bank will pay the check and you'll avoid insufficient fund fees and returned check fees.
* See credit counseling.
* Plan ahead to prevent financial emergencies.

Prevent Financial Emergencies

Take a close look at your income and expenses. Track where your money goes and find ways to save. It only takes small amounts in a number of different areas to add up to enough to build a small savings account that you can turn to in a bind instead of turning to high-rate lenders like pay day loan companies.

For additional information about Pay Day loans in Georgia please go to: http://www.georgia.gov/00/article/0,2086,5426814_39039081_39271654,00.html