Monday, November 16, 2009

The Truth About Payday Lending


By Karen Saley, Extension Specialist

With the holidays just around the corner and money being tight for many of us, you may be considering a short-term payday loan. Before you run out and borrow that money let’s look at how these loans work.

You write a personal check payable to the payday lender for the amount you want to borrow, plus the fee you must pay for borrowing. The company gives you the amount of the check less the fee, and agrees to hold the check until the loan is due, usually your next payday. The fees on these loans can be a percentage of the borrowed amount — or they can be based on increments of money borrowed: say, a fee for every $50 or $100 borrowed.

So let’s say you borrow $100.00 and the fee is $15.00. When you get your next paycheck you will need to give the payday lender $115.00. You may be saying to yourself, well that’s not so bad; I borrowed this money at 15%, that’s lower than the interest rate on my credit card. What you need to consider, however, is how long did you borrow the money? A week, two weeks? Then what happens if you can’t pay back the original amount in that time period? You “rollover” the loan and now you have borrowed $115.00 with another $15.00 fee attached. You now owe $130.00 and it has cost you $30.00 to borrow $100.00.

So if you are considering one of these short-term loans to cover holiday expenses you may want to reconsider. Look at other ways to make your holidays special. If, however, you find yourself in a position of not being able to meet your living expenses here are some things to consider before visiting your local payday lender.

~Contact your creditors and discuss the possibility of adjusting your payment amount and/or schedule. Be sure to ask what type of fees may be involved in restructuring your account.
~Contact a reputable credit counseling agency to help you set up a debt repayment plan or help you create a spending plan that fits your circumstances.
~Shop around for a low-cost loan from your credit union or small bank. Remember to ask about interest rates and fees.

Contact to speak with a financial counselor free of charge and for more information about payday lending visit


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Company and product listings do not represent endorsement by either: Pinellas County Extension, Pinellas County or the University of Florida / Institute of Food and Agricultural Sciences.