“Payday loans,” which are also called cash advance, check advance and post-dated check loans, have become increasingly popular for fast cash.

All a consumer needs in order to obtain a payday loan is employment, a utility bill, a checking account and a driver’s license. The borrower writes a personal check payable to the lender for the amount he or she wishes to borrow, plus a fee, which is typically in the range of 10% to 25% of the amount.

That check is held for up to four weeks. At that time, the check is redeemed by the borrower by paying the face amount of the check or allowing it to be cashed. If the borrower cannot cover the check, it can be rolled over for another term by writing another check with another set of fees added to the balance.

Consumers may be misled into thinking that payday loans are a cheap and convenient way of borrowing money for the short term. However, they often have difficulty repaying the loan because it leaves little or no money for living expenses. The result is that the borrower pays another round of charges and fees and obtains no additional cash in return.

With average annual interest rates ranging from 390% to 871%, payday loans are no bargain. Consider this example:

If the check is written with a face value of $200, a 15% fee ($30) is applied. The amount paid to the borrower is $170 and the lender receives $30, which translates to an APR of 458% if the loan is repaid in two weeks. If it is rolled into a new payday loan, an additional fee of $30 is charged, the loan is raised to $230, and the APR jumps to 917%. In other words, it could cost $60 to borrow $170 for one month.

Instead of resorting to this type of borrowing, come in to Belco Community CU and sit down with one of our representatives. We’ll help you evaluate your situation and find a better option that won’t leave you in a vulnerable position. ((^,,,^))