Cash advance and payday loans can result in a financial sinkhole - AmericaNowNews.com

Cash advance and payday loans

Cash advance and payday loan businesses promise quick cash or easy money to hold you over until your next paycheck arrives. 

If you pay your loan off within a couple of weeks, there's no problem. If you delay, prepare yourself for some real sticker shock.

Our investigation shows that taking as long as a year to repay these loans back, could cost you more than five times as much as you borrowed, and feeling like you've been robbed.

In some areas around the country, city leaders want to outlaw the extreme interest charged by cash advance lenders.

Cash advance and payday loan businesses continue to spring up all over the country.

LaShunda Scales is a councilwoman in Birmingham, Ala. She says the fees some places charge are way too much.

"We have been inundated with so many payday title loans," Scales says. "All of that, and most of our people are just the working poor, and you're only able to pay off the interest."

Some payday loan businesses charge as much as 17.5 percent. So, a $400 loan is going to cost you $470 if you pay it off in two weeks.

If your bills have you bogged down and you're unable to pay if off for a year or more, hold onto your wallet.

We found the Annual Percentage Rate charged by one lender soared to 456 percent, or $1,825 in interest alone. So, you would end up paying back a whopping $2,225 on your $400 loan.

That's money people like Pam Myers and Lucretia Parker say they would have a hard time paying back. 

"I had no idea interest rates were that high, my goodness," Parker exclaims.

"I didn't have any idea that the interest rates were so high, you know, I've had a couple of friends who've had experience with it, but to each his own," Myers adds.

Experts say payday loans are bad because they can start a vicious cycle of spending your paycheck before you earn it.

"People think, well it's ok, it's only for a week, two weeks, then I'll pay it off. Once they get into that mentality they say, ok, I don't mind paying that $75 or $100--whatever it might be--so I can get this loan to get this money because I really, really need this money and I need it now," says Tom Bartholomy, President and CEO of the Better Business Bureau serving Charlotte and the Southern Piedmont region of North and South Carolina. 
 
In most cases, these loans are not paid off that quickly, putting the borrower at risk for a financial disaster. 

One thing you can do to get yourself out of debt is to contact a nonprofit credit counseling service. There's at least one located in most communities across the country. 

The key here is to make sure they are a nonprofit service and not something you have to pay to get your credit repaired or pay to have your other loans paid off.

They'll help you work out a plan to set up a budget and get out of that financial hole. 


Additional Information:

  • Some credit unions offer Salary Advance Loans which work similar to a payday loan. They offer a low interest rate and some credit unions will even require you to set up a Salary Advance Cash Account which helps you save in case you need financial help in the future.
  • Talk to your creditors about extending your bill due date. When you know you don't have money to pay a bill, call your creditor and let them know. Many will allow extend your due date without charging a late fee or reporting you to the credit bureau.
  • Ask your boss if you can work some overtime. Those extra hours can be worth lots of money to help you save up extra cash.
  • Do a side job. If you have a hobby or skill that's in demand, offer your services to people in exchange for money.
  • Ask your employer for a payday advance. In effect, this is the same thing as a payday loan, but without the excessive fees and loan trap. Talk to someone in your human resource about getting an advance on your next paycheck. Keep in mind that getting an advance will lower your next paycheck. Some employers even give loans that can be repaid over multiple pay periods, lessening the effect on your take-home pay.
  • Sell or pawn things you no longer need. We all have clutter around the house. Use eBay or Craigslist to sell things you don't need.
  • Adjust your tax withholding. Having extra money withheld from your paycheck so you can get a bigger tax refund is a bad idea when you're struggling to make ends meet.
  • The IRS web site has a tax withholding calculator you can use to tell just how much tax should be taken out of your paychecks. Make sure you're getting enough taxes withheld, otherwise you'll end up owing taxes next April.
  • Cut out some of your bills. Do you really need all those premium cable channels or all those bells and whistles on your cell phone? Trimming some of those services can save lots of money.
  • Look for local emergency hardship programs. You may find some local organizations who will give or loan you money to help you out. Contact your local Department of Human Resources to find out if there are any emergency assistance programs in your area.
  • More resources are available at the BBB website - http://charlotte.bbb.org/article/bbb-best-and-worst-ways-to-raise-quick-cash-for-the-holidays-23698
  • Click here to read more about Salary Advance Loans - https://www.ncsecu.org/Loans/SalaryAdvance.html
  • Click for a list of Alternatives to Payday Loans - http://credit.about.com/od/avoidingdebt/tp/payday-loan-alternatives.htm

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