"GET CASH UNTIL PAYDAY! . . . $100 OR MORE . . . FAST."
The ads are on the radio, the television, the Internet, and even in the mail. They
refer to payday loans - which come at a very high price..

Check cashers, finance companies and others are making small, short-term,
high-rate loans that go by a variety of names: payday loans, cash advance
loans, check advance loans, post-dated check loans or deferred deposit check
loans.

Usually, a borrower writes a personal check payable to the lender for the amount
he or she wishes to borrow plus a fee. The company gives the borrower the
amount of the check minus the fee. Fees charged for 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. And, if you extend or "roll-over" the
loan -- 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 (a dollar amount) and the annual percentage rate or APR (the
cost of credit on a yearly basis). Please note that laws regulating payday loans
vary by state.

A cash advance loan secured by a personal check -- such as a payday loan -- is
very expensive credit. Let's say you write a personal check for $115 to borrow $100
for up to 14 days. The check casher or payday lender agrees to hold the check
until your next payday. At that time, depending on the particular plan, 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 loan for another two weeks. In this
example, the cost of the initial loan is a $15 finance charge and 391 percent APR.
If you roll-over the loan three times, the finance charge would climb to $60 to
borrow $100.

Alternatives to Payday Loans
There are other options. Consider the possibilities before choosing a payday loan:

• When you need credit, shop carefully. Compare offers. Look for the
  credit offer with the lowest APR -- consider a small loan from your
  credit union or small 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.
  
  
• 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.
  
  
• Ask your creditors for more time to pay your bills. Find out what they
  will charge for that service -- as a late charge, an additional finance
  charge or a higher interest rate.
  
  
• Make a realistic budget, and figure your monthly and daily expenditures.
  Avoid unnecessary purchases -- even small daily items. Their costs add
  up. Also, build some savings - even small deposits can help - to avoid
  borrowing for emergencies, unexpected expenses or other items. For
  example, by putting the amount of the fee that would be paid on a
  typical $300 payday loan in a savings account for six months, you would
  have extra dollars available. This can give you a buffer against financial
  emergencies.
  
  
• Find out if you have, or can get, overdraft protection on your checking
  account. If you are regularly using most or all of the funds in your account
  and if you make a mistake in your checking (or savings) account ledger
  or records, overdraft protection can help protect you from further credit
  problems. Find out the terms of overdraft protection.
  
  
• If you decide you must use a payday loan, borrow only as much as you
  can afford to pay with your next paycheck and still have enough to make
  it to the next payday.