Should I Consider Getting An Advance On My Paycheck Through a Payday Lender?

NO, NO , & NO!

Do you sometimes find yourself short on cash with pressing bills to pay? Better think twice before stepping into a payday lending store to get some quick money. Not only will you end up paying high fees, but you could soon find yourself in serious financial trouble if you don’t immediately pay back the cash advance.

As Tuscarawas County residents have become aware, these payday lending businesses have sprouted up all over the county. Other businesses such as cigarette and alcohol sales establishments haven incorporated payday lending into the services they offer their customers.

Payday lending—sometimes called cash advance—is unfortunately a growing industry. Over the past 10 years, the number of payday lending stores has grown from 300 to 15,000, according to the Center for Responsible Lending (CRL), a nonpartisan, nonprofit research and policy organization that promotes responsible lending practices. The cost of payday lending—in excess interest and unnecessary rollover fees—is $3.4 billion per year, according to a recent report by CRL.

Getting a cash advance is a fairly easy process if you have been employed a couple of months and have a checking account. To get a cash advance, you usually give the lender a personal check that will be cashed in the future or agree to have money automatically withdrawn from your bank account. The you get the cash, minus lender’s fees. For example, for a $300 loan, you might pay $45 in fees and get $255 in cash. The lender won’t cash the check or have the money withdrawn from your bank account until your next payday-usually 14 days—or an agreed upon date. After that, you payback the $300 or roll over the loan.

The bigger problem that arises is that many people can’t afford to immediately pay back the $300 and end up in a debt trap as they rack up rollover fees without paying down the principle, according to CRL.

Because the loans are so short-term, you usually end up paying more in fees than you would a credit card. For the two-week example above, you are paying a 400 percent annual percentage rate (APR). In comparison, most credit cards have an APR rate of between 18 percent and 28 percent, says Sharon Reuss, spokesperson for CRL based in Durham, NC.

“When you don’t honor the terms of the agreement, you can find yourself paying outrageous interest and fees. A simple $100 advance can turn into thousands of dollars,” said Mike Kappas, President of Consumer Credit Counseling Services (CCCS) of the Midwest, a nonprofit counseling service.

The best way to avoid going into debt is to be financially responsible at all times, Kappas said.

“We really believe that every person, whether they are making $8,000 or $100,000, should spend a fair amount of time on their personal finances so they know where they are with their budget, he said. “To many people wait way to long to take charge of their financial situation. Seek professional help that is out there that will help rebuild your financial life.”



Alternatives to Consider:

• Contact an accredited counseling agency such as CCCS or in our area, the HOME Counseling Program at (800) 581-3247.
• Talk to your creditors to see if a payment schedule can be worked out.
• Save your income tax refund if you have one so that you have a financial reserve for emergency situations.
• Borrow from family members or friends.
• See if your employer will give you an advance.
• Check with local social service agencies to see if they can help.