Payday Loans Aren't Worth the Cost

1/19/2021

Couple counting money and looking at bills

When money is tight and you don’t know if you’ll be able to make your rent or keep the lights on, you start looking for ways to find quick cash. You can sell some personal items or ask family members for a loan, but whatever you do, don’t go to a payday lender. It’s a trap that will hold you captive far too long and cost you many times more than you borrow.

These loans are popular because they are extremely easy to get – they don’t require a credit check or collateral. A typical loan is for 14 days and you’re expected to pay it back in full when you receive your next paycheck. However, payday lenders charge a fee of 15% to 20% for every $100 borrowed. For a two-week loan, that works out to an annual interest rate well over 350%. Most payday borrowers can’t pay the loan in full when it becomes due, so they roll it over into another loan and a new finance charge is added to it.

For example, say you borrowed $300 with a 15% finance charge for a two-week period. On your next payday, you would have to pay $345 ($300 x .15) to the payday lender. If you can’t pay it when it’s due and roll it over, you get hit with another finance charge, this time on $345. Now you owe $396.75. If you can’t pay that amount and roll it over again for another two weeks—which happens to many people using payday lenders— you will owe $456.26 on a $300.00 loan in just six weeks.

So, what are your alternatives? You may qualify for a personal loan from the credit union. The interest rate will be far better than a payday lender. Even if you don’t have an excellent credit score, talk to one of our loan officers. We may be able to find a workable solution for you.

Know that when you are hit with a financial emergency, there are better options for you than a payday loan. Your credit union is committed to helping its members throughout their lives, through the good times and the bad. If you need a loan, talk to us to discuss how we can help you get through a rough patch safely.



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