In today’s economy, many people are feeling financially stressed. When money gets tight, consumers who need only a few hundred dollars may consider a “payday” loan. Yet most payday borrowers end up paying triple-digit interest rates and high fees, which only make a bad financial situation worse. Watch this quick educational video created by the Federal Trade Commission shows some of the dangers of these types of “fast cash” loans.
What you need to know…
What is a Payday Loan?
According to the New York State Department of Financial Services, a payday loan is “a relatively small, high-cost loan, typically due in two weeks and made with a borrower’s post-dated check or access to the borrower’s bank account as collateral”. Typically, payday loans feature:
- Full payment due by your next paycheck.
- Triple-digit Annual Percentage Rate (APR) ranging from 100% to over 1000%.
- Fees ranging from $30 to $120 (charged each time the loan is extended).
- Finance charges per $100 borrowed ranging from $15 to $30 or as high as $50.
- Marketing promises such as Quick Cash, Fast Cash, Bad Credit OK and/or Get Your Money Now. If a loan is advertised this way…BEWARE!
Borrowers who cannot afford to repay these loans within two weeks are usually forced to extend the loan and are charged additional interest and fees. Fees and interest are added to the loan total each time it is extended; therefore, the total amount due increases exponentially, making it even more difficult to pay back. An initial loan of $500 can end up costing the borrower $1,000 or more!
It is estimated that 12 million Americans turn to payday loans each year. Payday loans are never a way to overcome financial hardships; in fact, they will likely make your situation much worse. In addition to the predatory high rates and fees, borrowing from an unknown online organization can both jeopardize your financial situation and put you at serious risk for fraud and identity theft. There are better options! If you are considering a loan, talk with an AmeriCU representative, read our information on taking control of debt, seek guidance from a reputable consumer credit counseling organization, or seek other reliable funding sources. (Need tips on shopping for a loan?)
Already Have Payday Loan Debt?
If you already have payday loan debt, it’s not too late! As your Credit Union, we are here to serve, educate, and assist all of our members; it’s one of the many benefits of your membership and a big part of what sets credit unions apart from other types of financial institutions. AmeriCU offers our members free credit counseling services. We can help you create a budget and plan your path to financial security. Please visit your nearest AmeriCU location to schedule an appointment and start taking control of your financial future. If you are a member of the Armed Services, check out AmeriCU’s ARK Loans.
For additional information, please consult:
- New York State Department of Financial Services Payday Lending Consumer Information
- Consumer Finance Protection Bureau Payday Lending Information
- Consumer Federation of America’s Payday Lending Information
- Credit Union National Association
- The Center for Responsible Lending
- Pew Research on Payday Lending