|
The True Cost of Payday Loans
Payday loans cost a lot more than $15 per $100
borrowed. Here is a list of how much a payday loan could cost you compared to the alternatives:
| Interest Paid | Total payment over 1 year | Type of Loan | APR | Principal | 1
Month 2 Touch & Go's | 5 Months 10 Touch & Go's | 1 Year 25
Touch & Go's | Principal + interest | Payday Loan | 390% | $500 | $150 | $750 | $1,950 | $2,450 | Consumer Finance Company | 36% | $500 | $15 | $75 | $180
| $680 | Credit Card Advance | 28% | $500 | $11.67 | $58.35 | $1140 | $1640 | Credit Union | 18% | $500 | $7.50 | $38 | $90 | $590 | Credit Card (no
min. payment) | 15% | $500 | $6.25 | $31.25 | $75 | $575 | Military Relief Societies | 0% | $500 | None | None | None | $500 |
Most short term loans are taken out over 1-2 months but many payday loan customers
end up getting trapped in a cycle of debt for much longer than that. But as you can see, even if they loan
is repaid within one month, a consumer could have saved up to $145 by finding an alternative loan. Some
alternatives to payday loans are listed below. Alternatives to Payday Loans
Payment Plan with Creditors: Face the Problem Head On Many
creditors will work with you to create a new payment structure to include partial payments over a longer period of time.
It is important to see what they may charge for this service, but it will most likely be less than the fees and interest
charged by payday lenders. This is often the best option for those facing debt problems. Loans from Family and Friends: Look to those who love you This may
be an embarrassing situation for you but true friends and family would rather help you themselves than see you become trapped
in a cycle of debt by a payday lenders. Everyone goes through tough financial times and asking for help
is OK. Advances
from Employers: Using money
that is already yours Many employers will work with employees if they need a paycheck
advance for emergency expenses. The advantage of this method is that there are no fees or interest since
this is not a true loan, only an advance.
Small Business Owners - Download a Sample Memo about Payday Advances to Employees
Sample Text for a Policy on Payday Advances
Consumer Credit Counseling: When you need some advice about debt problems
The Federal Trade Commission suggests that people look into working with consumer
credit counseling services to create a debt repayment plan that fits your budget. These services are usually
available at little to no cost through non-profit groups, employers, credit unions or banks, and housing authorities.
See below for links to some groups in Virginia:
National Foundation for Credit
Counseling - www.debtadvice.org – 1-800-388-2227 Consumer
Credit Counseling Services Southwest
Virginia – www.cccsswva.org – 1-866-260-5994 Catholic
Charities of Eastern Virginia, Inc. http://www.cceva.org – 757-484-0730 Offices
in Virginia Beach, Chesapeake, Franklin, Newport News Commonwealth
Catholic Charities http://www.cccofva.org
Offices in Richmond, Ashland, Blacksburg, Charlottesville, Chester, Highland Springs, Lexington, Lousia, Mineral, Norton,
Orange, Roanoke, Staunton Center
for Child and Family Services, Inc. (Consumer Credit Counseling Service of Hampton Roads)
http://www.debtfreeonline.com/main.html - 757-826-2227 Offices
in Hampton, Williamsburg, Yorktown Alliance
for Families and Children of Central Virginia (Consumer Credit Counseling Service of Central Virginia)
http://www.alliancecva.org/fin.html#cccs – 434-845-5944, ext. 237
Office in Lynchburg
Emergency Assistance Programs: Look to your community for help Many
communities have faith-based and community organizations that will provide emergency assistance to those in need, either directly
or through social services programs. Look into your community for further help locating these services.
A good starting point is your city/county or state Social Services department.
Virginia Department of Social
Services – http://www.dss.virginia.gov/
Credit Union Loans:
Help from your bank As
payday lending became more prevalent throughout the United States, credit unions began offering alternative programs for their
customers. These loans are usually at an interest rate that is well below those of payday lenders, usually
ranging from about 10%-20% APR and sometimes a small one-time fee. These loans are usually approved quickly
and some credit unions offer a streamlined process if you enroll in their program. There are many credit
unions offering such services in Virginia.
Click for a list of Virginia Credit Unions offering payday loan alternatives
Click for a listing of Virginia Credit Unions
Click to find a Credit Union your can join
Cash Advances on Credit
Cards: Use a lower interest
rate loan Credit card cash advances are usually offered at about 30% APR,
much cheaper than a payday loan. There are even some credit card companies who work specifically with people
who have poor credit or financial problems. A secured credit card is also an option. A
secured credit card is tied to a savings account and the funds in the account ‘secure; the amounts charged on the card.
Using this type of card can help you qualify for a regular unsecured credit card. Consumers should
be careful to research the companies they plan on using and do not assume that you will qualify for a credit card. Military Loans: Relief
Societies There are military relied societies for all branches of the military.
They provide emergency funds to active duty, reserves, and direct dependants of military personnel, usually at no cost
and with flexible repayment plans. Even though payday loans have been capped at 36% APR for the military,
this is a better option for those looking for emergency funds. Please refer to the website for your branches
relief society listed below:
Small Consumer Loans:
Better
options There are many small consumer-finance companies that offer small,
short-term loans that can cost up to 60% ARP, but usually cost about 25-36% APR. These rates are much lower
than those of payday lenders and you can also receive up to $1000 for a year and pay much less than a $200-300 loan from a
payday lender over a year. This is a good option for those who need larger amounts of money or have expenses
that will extend beyond the two week period of most payday loans.
For more information
See
the Center for Responsible Lending or call the Federal Trade Commission for free information on consumer issues at 1-877-FTC-HELP
(1-877-382-4357) or at www.ftc.gov .
Sources
“Alternatives to Payday Loans” published
by The Center for Responsible Lending “Payday Loans = Costly Cash” published
by the Federal Trade Commission Bureau of Consumer Protection, the Office of Consumer and Business Education “Payday
Loan” published by Wikipedia “How Much Interest Do You Pay to Borrow
$500?” and “Alternatives to Predatory Lending” published by the Virginia Partnership to Encourage Responsible
Lending
|
