Just a few years ago it was folks who lived paycheck to paycheck who were more likely to take out a payday loan. Not so anymore. With the down economy, many people are scrambling to get cash from anywhere they can -- including payday loans.
Payday loans aren't always the quick fix that borrowers hope. Sometimes they lead to increased debt.
Here's how a payday loan works:
You apply for a loan, say for $250. You'll be charged a fee, possibly $50, which comes off the top. You write a postdated check for the full $300 (the check is your collateral) and receive $250 in cash. At the end of the period, perhaps two weeks, the lender deposits the check -- or you go in and pay the $300 in cash.
If you don't have the money, the lender will be happy to roll it over into another loan, which will include more fees. If another $50 fee is tacked on, you'll then owe $350 on a $250 loan. If you don't pay, they'll cash that check, leaving you with even more problems, this time with the authorities for writing a "bad" check.
If the lender takes you to court to seek repayment for the bad check, some states allow a "three times the amount" penalty to the payee.
You'll pay that, plus non-sufficient funds charges at the bank.
Online, the situation can be even more serious, and the opportunity for scams is rampant. For a lender to electronically deposit the money, it needs your bank account number, as well as personal information that likely includes your Social Security number. You may be required to pay an upfront fee for the loan, thereby giving the lender permission to do an electronic funds transfer out of your account. When it comes to the loan itself, the question to ask yourself is: Will it be putting money in -- or taking more money out?
A number of states have legislation in the works to cap the annual interest rate, generally at 36 percent. Some states have already done this.
If you need cash, do anything you can to get it elsewhere. If you're caught up in a loop of ever-increasing payday loans, seek counsel at your local Legal Aid.David Uffington regrets that he cannot personally answer reader questions, but will incorporate them into his column whenever possible. Write to him in care of King Features Weekly Service, P.O. Box 536475, Orlando, FL 32853-6475, or send e-mail toDavid at the following : columnreply@gmail.com.
Payday loans aren't always the quick fix that borrowers hope. Sometimes they lead to increased debt.
Here's how a payday loan works:
You apply for a loan, say for $250. You'll be charged a fee, possibly $50, which comes off the top. You write a postdated check for the full $300 (the check is your collateral) and receive $250 in cash. At the end of the period, perhaps two weeks, the lender deposits the check -- or you go in and pay the $300 in cash.
If you don't have the money, the lender will be happy to roll it over into another loan, which will include more fees. If another $50 fee is tacked on, you'll then owe $350 on a $250 loan. If you don't pay, they'll cash that check, leaving you with even more problems, this time with the authorities for writing a "bad" check.
If the lender takes you to court to seek repayment for the bad check, some states allow a "three times the amount" penalty to the payee.
You'll pay that, plus non-sufficient funds charges at the bank.
Online, the situation can be even more serious, and the opportunity for scams is rampant. For a lender to electronically deposit the money, it needs your bank account number, as well as personal information that likely includes your Social Security number. You may be required to pay an upfront fee for the loan, thereby giving the lender permission to do an electronic funds transfer out of your account. When it comes to the loan itself, the question to ask yourself is: Will it be putting money in -- or taking more money out?
A number of states have legislation in the works to cap the annual interest rate, generally at 36 percent. Some states have already done this.
If you need cash, do anything you can to get it elsewhere. If you're caught up in a loop of ever-increasing payday loans, seek counsel at your local Legal Aid.David Uffington regrets that he cannot personally answer reader questions, but will incorporate them into his column whenever possible. Write to him in care of King Features Weekly Service, P.O. Box 536475, Orlando, FL 32853-6475, or send e-mail toDavid at the following : columnreply@gmail.com.
