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Cash Advance Loans: Loan Sharks In Disguise?
By David Berky
You have seen them on the corner and in the poorer parts of town with names like "Quick Cash", "Quick Loan",
"Payday Loans", "Car Title Loans". They are starting to sprout up all over the country and will soon rival Starbucks
for sheer number of locations.
They are the new trend in predatory lending practices but still manage to fly under the radar of regulation in most
states. They don' t charge interest, they charge a "fee". But it sounds like the ultimate in convenience. Need some
quick cash - stop by and in just five minutes you can be out the door with $100, $500 even $1000 dollars. But what
is the true cost of this "convenience"?
How It Works
A cash advance or payday/paycheck loan is usually secured by a personal check. Some companies want your
bank account or credit card information in addition to or instead of a check. You write a check to be cashed or agree
to have an amount withdrawn from your bank account sometime in the future; usually 14 days (the standard payroll period).
After completing the agreement/contract you are given an amount that is less than what you have agreed to pay. The
difference is the "fee" for the loan service. And you have got your cash!
Why It Works
Why is the company willing to loan you money like this? Simple, because loaning out money for these "fees" really
amounts to a huge profit at your expense. For example, say you borrow $200 and the lender charges a "fee" $15 for each
$100. Within 14 days you will have to pay $230 for borrowing $200. Now if the $200 keeps you from having to pay a $100
late fee or penalty on something it is probably worth it. But if you just want the money today, you are paying a high price.
You are paying 15% interest for a 14 day loan. That amounts to 3785% compounded interest yearly! No wonder
lenders are happy to loan you this money. If they loan you $100 and you pay them back with an extra $15 in two weeks
and they loan out the $100 again along with the $15 extra you paid, and they keep doing this for one year, they will turn
their $100 into $3785 by the end of the year!
Maybe you should be loaning your money to them rather than borrowing from them.
What To Watch Out For
 Early repayment fees.Pay off your loan early and they sock you with another fee.
Late repayment fees.You may have to pay the entire fee again if you miss the payment date.
"Membership" fees.Some companies charge you to become
their customer along with charging you as their customer.
Giving lenders access to directly debit your bank account.
Just hand them your wallet, it's quicker.
Fine print (as in all contracts). Know what you are signing or don't sign it.
Bounced check or debit fees. Make sure you have money
in your bank account or you get to pay your bank a fee as well.
"Collateral" requirements such as a car title. Miss your
payment and you may be missing your car - permanently.
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