Payday loans seem like a convenient way to get some extra cash when you need it most before your next check arrives, but that convenience could come at a higher cost than you anticipated.
These loans typically offer you quick cash for a fee to borrow the money for a short time, like two weeks.
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How payday loans work
The servicer will take a check with the amount you owe, plus the fee for the loan with your signature on it.
If you can’t pay the fee and loan in full in those two weeks, you could buy yourself time and only pay the fee to buy yourself two more weeks.
Let’s say you borrow $1,000, and your fee is $100. If you can’t pay that $1,100 when your payment date comes due, you still need to pay the $100 fee (which would give you another two weeks to pay) and still owe $1,100 from the initial loan.
If you don’t pay the loan in full every two weeks, you must still pay that $100 fee, or the loan servicer will cash the check you gave them, and you could end up in an overdraft situation if your bank account does not have the funds.
Rolling over your payday loan means you’re going to pay a lot more than you initially anticipated in the first place.
What you can do instead
The Federal Trade Commission recommends that borrowers ask themselves if they could find a less expensive and less risky option to borrow money than a payday loan before signing the dotted line and getting into more debt.
Some options could include borrowing money from family and friends, using credit unions with lower interest rates, and seeking personal loans or payday alternative loans with better financial terms than typical payday loans.
When borrowing money, it’s essential to shop around for the best interest rates and always be aware of the terms and costs you agree to before signing on the dotted line.
Where to report fraud
Anyone who believes they have encountered a dishonest payday lender can report it to the Texas Attorney General’s Office and to the FTC at ReportFraud.ftc.gov.
