Sunday, January 4, 2009
Just Say No to Payday Advances
There's something very enticing about being able to walk into any Check n' Go, Money tree, Western union, Check-into-Cash, or Allied Cash advance store and walk out 5 minutes later with cold hard cash. When you don't have enough money to pay bills or repair your car, this can seem like the perfect solution to your problems. The catch is that you are spending an obscene amount of money in interest, and starting a downward spiral of expense. Payday advances are like drugs, just say no and here is why:
Most payday advance places have you write a post dated check for a loan amount plus whatever fees and interest they charge. The check is held for the duration of the loan, usually only a few weeks, and then cashed on a specific date. According the Wikipedia "In the United States, finance charges on payday loans are typically in the range of 15 to 30 percent of the amount for the two-week period, which translates to rates ranging from 390 percent to 780 percent when expressed as an annual percentage rate APR."
Not only are you flushing you money down the toilet in interest, but you are also adding another bill to your already unstable finances. After the two weeks is up, you have to pay the money back. If you can't afford it now, what makes you think that you can later. The worst part is that after everything is said and done you will have paid anywhere from $30 -$100 to be in the same boat you were 2 weeks prior. Many people pay back one loan, and have to immediately take out another loan, like a revolving balance on a credit card. They do this week after week for extended periods of time forming a vicious cycle of wasting money.
Pretend that you took out a modest $200.00 two week loan with a fee is $30.00. At the end of the two weeks you pay it back and take out another loan for the same amount with the same fees. You do this for 5 times in a row. At the end of the 10 weeks, it will be the equivalent of taking out one $200.00 loan and paying $150.00 in interest. If this was continued for the duration of a year, that modest $200.00 loan would end up costing you over $780.00.
Payday advances are a huge waste of money. Have an emergency savings account, or if all else fails pawn stuff. Just don't spend $30.00 for a two week loan.