Investment & Financial Articles
Title: Cash Advance Loans: Loan Sharks In Disguise?
Author: David Berky
Article:
You have seen them on the corner and in the poorer parts of town
with names like "Quick Cash", "Quick Loan", "Payday
Loans", "Car
Title Loans". They are starting to sprout up all over the
country and will soon rival Starbucks for sheer number of
locations.
They are the new trend in predatory lending practices but still
manage to fly under the radar of regulation in most states. They
don' t charge interest, they charge a "fee".
But it sounds like the ultimate in convenience. Need some quick
cash - stop by and in just five minutes you can be out the door
with $100, $500 even $1000 dollars. But what is the true cost of
this "convenience"?
How It Works
A cash advance or payday/paycheck loan is usually secured by a
personal check. Some companies want your bank account or credit
card information in addition to or instead of a check.
You write a check to be cashed or agree to have an amount
withdrawn from your bank account sometime in the future; usually
14 days (the standard payroll period).
After completing the agreement/contract you are given an amount
that is less than what you have agreed to pay. The difference is
the "fee" for the loan service. And you have got your cash!
Why It Works
Why is the company willing to loan you money like this? Simple,
because loaning out money for these "fees" really amounts to a
huge profit at your expense.
For example, say you borrow $200 and the lender charges a "fee"
$15 for each $100. Within 14 days you will have to pay $230 for
borrowing $200. Now if the $200 keeps you from having to pay a
$100 late fee or penalty on something it is probably worth it.
But if you just want the money today, you are paying a high
price.
You are paying 15% interest for a 14 day loan. That amounts to
3785% compounded interest yearly! No wonder lenders are happy to
loan you this money. If they loan you $100 and you pay them back
with an extra $15 in two weeks and they loan out the $100 again
along with the $15 extra you paid, and they keep doing this for
one year, they will turn their $100 into $3785 by the end of the
year!
Maybe you should be loaning your money to them rather than
borrowing from them.
What To Watch Out For
* Early repayment fees. Pay off your loan early and they sock
you with another fee. * Late repayment fees. You may have to pay
the entire fee again if you miss the payment date. *
"
Membership" fees. Some companies charge you to become their
customer along with charging you as their customer. * Giving
lenders access to directly debit your bank account. Just hand
them your wallet, it's quicker. * Fine print (as in all
contracts). Know what you are signing or don't sign it. *
Bounced check or debit fees. Make sure you have money in your
bank account or you get to pay your bank a fee as well. *
"
Collateral" requirements such as a car title. Miss your payment
and you may be missing your car - permanently.
There Is A Better Way
The root problem here could be that you are getting strangled by
your debt payments. Credit cards, store accounts, installment
payments and such can eat up your income quickly. Ite may be
time to visit a non-profit credit counseling service or create a
debt reduction plan for yourself.
Or it could be that you are just spending more than you make.
You may need to spend a few minutes each week and write down
your expenses. Then categorize and total them to see where your
money is going. Then record your income for the same time period
and make sure that you are not spending more than you make.
Sure, everyone gets behind occasionally. But you need enough
room in your budget (this means spending less than what you
make) to accommodate the "budget busters" and surprise expenses
that may come up. It may mean cutting back on cable, magazine
subscriptions or eating out. But last time I checked, McDonalds
did not charge a $15 "fee" for making your food.
About the author:
©
Simple Joe, Inc. David Berky is president of Simple Joe, Inc.
which sells the Simple Joe's Debt Eraser PC software. Debt
Eraser can help anyone get out of debt quickly and inexpensively
by creating a <A
href="http://www.simplejoe.com/debteraser/index2.htm">Rapid Debt
Reduction Plan</A>. This article may be freely distributed as
long as the copyright, author's information and an active link
(where possible) are included.
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