The Cost of A Payday Loan

The principal disadvantage of such a loan is the cost - as a payday loan is very expensive credit. Under the Truth in Lending Act, the cost of payday loans - like other types of credit - must be disclosed. Among other information, you must receive, in writing, the finance charge – expressed as a dollar amount - and the annual percentage rate or APR.

For example, let's say you write a personal check for $115 to borrow $100 for up to 14 days. The payday loan provider agrees to hold the check until your next payday. At that time, depending on the particular plan, the lender deposits the check, or you redeem the check by paying the $115 in cash, or you roll-over the check by paying a fee to extend the loan for another two weeks. In this example, the cost of the initial loan is a $15 finance charge and 391 percent APR. If you roll-over the loan three times, the finance charge would climb to $60 to borrow $100.

Alternatives to A Payday Loan

If you decide you must use a payday loan, borrow only as much as you can afford to pay with your next pay check and still have enough to make it to the next payday.

But there are other borrowing options and you may wish to consider the other possibilities before choosing payday loans. In any event you should shop carefully, compare offers and look for the credit offer with the lowest APR. Compare the APR and the finance charge (which includes loan fees, interest and other types of credit costs) of credit offers to get the lowest cost.

	consider a small loan from your credit union or small loan company;
	consider an advance on pay from your employer;
	consider a loan from family or friends;
	A cash advance on a credit card also may be a possibility, but check out the interest rate and terms before you decide;
	Also, a local community-based organization may make small business loans to individuals;
	Consider asking your existing creditors for more time to pay your bills. Find out what they will charge for that service - as a late charge, an additional finance charge or a higher interest rate;
	Make a realistic budget, and figure your monthly and daily expenditures;
	Avoid unnecessary purchases;
	Try and build some savings to tide you over emergencies, unexpected expenses or other items;
	Find out if you have, or can get, overdraft protection on your checking account. If you are regularly using most or all of the funds in your account overdraft protection can help protect you from further credit problems. Find out the terms of overdraft protection;
	If you need help working out a debt repayment plan with creditors or developing a budget, contact your local consumer credit counseling service. There are non-profit groups in every state that offer credit guidance to consumers. These services are available at little or no cost.

Also, check with your employer, credit union or housing authority for no- or low-cost credit counseling programs.