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high interest rates by calling it a fee—a charge for services rendered. They cannot take installment payments to pay the loan back because the payday loan is not truly a loan. If it were, they would be restricted to interest-rate standards. The way payday loans are defined legally means they can request that your district attorney's office collect their debts from you.
The Consumer Federation of America describes such companies this way: “Payday loans are single-payment, short-term loans based on per- sonal checks held for future deposit or on electronic access to personal checking accounts. In a typical transaction, a consumer writes a check for $117.65 to borrow $100 cash, with the total amount due by next payday or in up to 14 days. The $17.65
finance charge computes to a 459% annual percentage rate.” You pay the same fee every time you borrow the money, and people have been known to end up paying 700% to 2000% annual percentage rates.
The danger of these loans is they must
be paid back in full on payday so you’re
already starting off with less money than
you had the previous payday. If you have to keep returning to the check-advance company, you can end up in real trouble.
What should you do?
Just don’t do it. Consider the cost, both emotional and mental. Contact your FFEF credit counselor at (855) 789-DEBT(3328) and ask him or her for suggestions. You might consider getting a second job or hold- ing a garage sale or other fundraiser. If you decide your only option is to use a payday loan, borrow only as much as you know you can pay back with your paycheck and still have enough to last until the next payday. The best solution is to never go down this road.
Poor Cash Flow
One sure way to make life miserable is to live in a manner that you can’t afford.
—Author Unknown
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