In the past few years, PayDay loan companies and stores have been popping up all over the country. With names that are easy to recognise, almost everyone of us has seen one.
Easy money often comes at a high cost and this is one of those times!
Americans paid more than $6 BILLION in payday loan fees in 2005 and when 2006 is counted, the results will most likely be higher! Pay Day lending is the fastest growing business in the country and it's a big business. For ezample, pawnbrokerages have expanded into the Payday loan business just a few short years ago. Now, some of their profit margin's have exploded and the stock had the best performance of any other on the New York Stock Exchange!
While buying the stock of a company like this would seem to be a good idea, using the services of a company like this almost never is. The reason companies like this make so much money is because of the high interest they charge their customers and this is not just a matter of opinion. Certain neighborhoods have limited or even forbidden them in their jurisdictions. The average payday loan has an interest rate of 500% or more. That makes one wonder who would use a payday loan service.
Targeting the credit constrained or unsophisticated consumer!
Most of those using payday loans have made bad credit decisions in the past or are unsophisticated about credit matters. These people most often live from paycheck to paycheck with no savings for emergencies. They don't think that when they agree to pay $40 fee for a $250 two week loan, that's a finance charge! Maybe some just don't care or feel they have no other options.
A growing number of people use payday loans to avoid a NSF charge for incoming checks to their banks. People living from paycheck to paycheck with little access to conventional credit or a credit card can be wiped out by unexpected expenses. If someone needs $200 for a car repair and needs to get to work the next day and doesn't have the money for this, they can write a check and get a loan on this check with little more than verification of employment. If no credit is available, then this person may be making a wise choice with a payday loan because bank NSF fees are at 660% or more and the payday loan is actually cheaper. The system is often stacked against those who need the most help.
You can avoid being an indentured servant!
Most who take out payday loans often have to take out another just to make ends meet. The best way to avoid this is to establish lines of credit, including a credit card. Even if you had to take a cash advance out on a credit card, the high interest you will pay for this cash advance is still a bargain compared to payday loans! Most cash advances from your credit card are around 30%, which is only a fraction of the interest a payday loan store will charge you!
Still, you would be even better off putting that car repair expense on your Visa or Mastercard at an interest rate half the 30% or even less and all would have been well! Bank overdraft fees often come from automatic withdrawals from your checking account for paying bills and these should be put on a credit card to avoid the 1,160% interest a bank can charge you.
If you find yourself in trouble repaying your credit card, pay at least the minimum amount due and add more to it later, like when you get paid again. Make this a priority second only to your survival. Have a savings account for things like this even if it is only a small amount like a couple hundred dollars. Avoid the mistakes of becoming a payday loan store consumer by opening a credit card account or two.
Your credit history will benefit from this and you should be putting your money to work for you and not to boost the bottom line for the shareholders of an unscroupulous company like a payday loan store!
Having a couple of credit cards in good standing will keep you from being exploited in this manner and that makes a Visa or Mastercard very worthwhile for this feature alone!
Duane Buell is a ID theft victim and author who has recovered and posted several articles and websites with links to the Dept of Justice and the Federal Trade Commission. His articles and website content has been as a teaching tool in the classrom and has been picked up by the US Education system webportals! Easy Credit Repair has been a hit on the web and the credit card offers for those who must start over with bad credit have earned him testimonials in internet blogs as a learning tool worth using and looking into! His sections on Common Credit Repair Scams and How to Dispute Negatives in your credit report are being used in classroom instruction!