Payday Loan Times

The ads are on the radio, television, the Internet, even in the mail. They refer to payday loans, which offer fast cash, but at a very high price.

Check cashers, finance companies and others are making small, short-term loans that go by a variety of names. In most cases, however, the process is the same — a borrower writes a personal check payable to the lender for the amount he or she wishes to borrow plus a fee.

The company, in turn, gives the borrower the amount of the check minus the fee.

Fees charged for no faxing payday loans are usually a percentage of the face value of the check or a fee charged per amount borrowed — say, for every $50 or $100 loaned. If you extend or have to roll it over, say for another two weeks, you will pay the fees for each extension.

Under the Truth in Lending Act, the cost of payday loans (like other types of credit) must be disclosed. Among other information, you must receive, in writing, the finance charge and the annual percentage rate or APR (the cost of credit on a yearly basis).

A cash advance loan secured by a personal check, such as a payday loan, is very expensive credit. Let's say you are strapped and agree to write a personal check for $115 to borrow $100 for up to 14 days. The check casher issues the faxless payday loan you seek and agrees to hold the check until your next payday.

At that time, depending on the particular program or situation, the lender deposits the check, you redeem the check by paying the $115 in cash, or you roll over the check by paying a fee to extend the cash loan another two weeks. In this example, the cost of the initial loan is a $15 finance charge at a shocking 391 percent APR. If you roll-over the loan three times, the finance charge would climb to $60 to borrow $100.

There are other options. Consider them before choosing a payday loan:

• When you need credit, shop around and carefully. Compare offers.
• Look for the credit offer with the lowest APR - consider a small loan from your credit union or small personal loan company, an advance on pay from your employer, or a loan from family or friends.
• A cash advance on a credit card also may be a possibility, but it may have a higher interest rate than your other sources of funds. Find out the terms before you decide.
• Also, a local community-based organization may make small business loans to individuals. There is also credit counseling.
• Compare the APR and the finance charge — which includes loan fees, interest and other types of credit costs — of credit offers to get the lowest cost.