Indianapolis - Circa November 2016: Check Into Cash Consumer Location. Check Into Cash Is A Payday Loan Company II

Avoid the PayDay Loan Trap

Single moms fight constant cash battles, trying to stretch every single dollar almost further than it can go. And sometimes – a lot of times – our cash falls short of what we need. When you are barely scraping by, running out of money between paychecks, the lure of having cash in hand can be hard to resist – and that’s exactly what payday loans offer.

Here’s a look at how a payday loan works: The lender charges $15 for every $100 you borrow. You need $200 to get you through until your next payday. He gives you $300 cash on the spot, and you agree to pay back $230 out of your next paycheck.

To get the cash, you have to give the lender access to your money. He’ll either have you write a check in advance for the full amount due or gain access directly to your online checking account. The day the loan is due, he’ll either take the money right from your account, or cash the check you gave him.

And though that cash-in-hand may seem like a godsend, payday loans are among the very worst financial traps. That $200 loan can end up costing even more than $230 if you can’t pay the full amount due when you get your paycheck.

Plus, if you’ve have spent all of the loan money on household expenses, you may have nothing left until your next paycheck. That sets you up to need another payday loan. And since those loans come with very stiff interest payments, you could quickly fall further and further behind.

15% is a typical fee for a two-week payday loan – $15 for every $100 you borrow. That translates to around a 400% APR (annual percentage rate), nearly 20 times the rate credit cards charge.

This can spiral out of control even faster if the lender offers installment payments or “renewal” loans (where you pay just the fee now, and the loan plus fee with your next check), which sound great at first glance. With either of these options, you don’t have to pay back the whole balance due at once. But this is an even bigger trap. Interest continues to build on your loan, which now includes any fees you haven’t yet paid. So if you pay just the $30 on your payday loan, and renew for another two weeks, you’ll owe $230 then – and you’ll have paid $60 to borrow $200 for one month.

So consider other options before getting lost in a bottomless payday loan trap. If you do have a bank account, or belong to a credit union, they may offer more affordable alternatives – especially if you use direct deposit for your paychecks. Even credit cards are better choices, because you won’t pay as much in interest and fees as you would with a payday loan.

You can also try talking to the companies you owe money to. You’d be surprised how often they’re willing to work with you, because helping you helps them get paid in the long run.

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