| Online payday loans: Borrower beware | | |
|
Turning to a payday lender -- online or on the corner
-- is almost universally discouraged by consumer advocates. But
the alternatives can seem thin to someone who needs cash to see
them through to the next paycheck. Many banks offer bounced-check
protection plans that consumer advocates often equate with payday
lending. A notable difference, perhaps, is that the consumer is
less likely to be able to overdraw several times and end up owing
money they probably can't repay.
"The long-term solutions include getting a good
spending plan and building a nest egg of savings," says Fox.
If you can afford to pay $45 every payday to keep a $300 loan from
bouncing, then you can afford to save it so you don't need to borrow
in the future.
"Pawn shops are cheaper than payday loans. On
rare occasions you can ask your employer for an advance. Negotiate
directly with whomever you owe. Get a second job. Put off purchases
until you can pay. None of these are comfortable. It's appealing
to write the check without having money in your checking account
and walk out with cash, but it comes at a high price."
In their survey of Internet payday loan sites, CFA
found that loans of $200 to $2,500 were available, but $500 was
the most-frequently offered. Finance charges ranged from $10 per
$100 up to $30 per $100 borrowed. The most common rate of $25 per
$100 translates into an annual percentage rate of approximately
650 percent if the loan is repaid in two weeks.
Many states have passed laws regulating payday and
small loan laws. Consumer Federation of America has compiled
important information that consumers should be familiar with before
borrowing.
| 
