The ads are on the radio, television, the Internet,
even in the mail. They refer to payday loans
- which come at a very high price.
Check cashers, finance companies and others
are making small, short-term, high-rate loans
that go by a variety of names: payday loans,
cash advance loans, check advance loans, post-dated
check loans or deferred deposit check loans.
What are Cash Advance Payday Loans
Usually, a borrower writes a personal check
payable to the lender for the amount he or
she wishes to borrow plus a fee. The company
gives the borrower the amount of the check
minus the fee. Fees charged for payday loans
are usually a percentage of the face value
of the check or a fee charged per amount borrowed
- say, for every $50 or $100 loaned. And,
if you extend or "roll-over" the loan - say
for another two weeks - you will pay the fees
for each extension.
Cash Advance Loans and the Truth and Lending Act
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 (a dollar amount) and the annual percentage
rate or APR (the cost of credit on a yearly
basis).
A cash advance loan secured by a personal check - such as a payday loan - is very expensive credit. Let's say you write a personal check for $115 to borrow $100 for up to 14 days. The check casher or payday lender agrees to hold the check until your next payday. At that time, depending on the particular plan, the lender deposits the check, 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.
Dave Myers
http://www.us-cash.com
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