Sunday, December 17, 2017
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Payday Loans: The Financial Quicksand

Payday loans are everywhere. Ads are on TV, radio, internet, and in your mailbox. No matter what you call them, “cash advance loans,” “check advance loans,” “post-dated check loans,” or “deferred deposit loans,” the Federal Trade Commission says these small, short-term, high-rate loans come at a very steep price.

How do they work, and why is it quicksand? A borrower will write a personal check and make it out to the lender. This is for the amount borrowed, plus the fee for borrowing the money. Example: Jane Doe is borrowing $100 from ABC Lending. Jane writes a check for $115 dated for her next payday. ABC Lending provides Jane with $100 and will cash the check the next time Jane gets paid.

Or with Jane’s permission, ABC Lending deposits $100 electronically to Jane’s checking account and will automatically withdraw the $100 plus their $15 fee on Jane’s next payday. The fees on these loans can be a percentage of the face value of the check – or they can be based on increments of money borrowed, like a fee for every $50 or $100 borrowed.

The borrower is charged a fee each time the loan is extended or “rolled over.” When payday arrives, if Jane cannot afford to pay back the $100 borrowed, ABC Lending can allow her to extend the loan an additional 14 days, but at the cost of another $15. The cost of the initial $100 loan is a $15 finance charge and an annual percentage rate of 391 percent. If you roll over the loan three times, the finance charge would climb to $60 to borrow the $100, and that’s where the quicksand comes in. Jane Doe probably could have paid the $100 back at the end of the first term, but ABC Lending calls and lets her know that it’s okay to extend the loan. Before she knows it, she’s rolled it over again and again. It can become a never-ending cycle.

We want you to know there is a better way! If you are behind on a few things, talk to your local credit union. Most times, we can offer a solution that will make better financial sense and get you back on track.

Print out a copy of your free credit report at www.annualcreditreport.com and bring it in. Our loan officers can help you find a solution that is right for you.

HealthNet Federal Credit Union
1591 Chickering Lane, Cordova, TN 38016
(901) 226-1111 | www.healthnetfcu.org

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