Consider the Costs of Pay Day Loans

Posted by April Thompson
Consider the Costs of Pay Day Loans

Oct 4, 2006 10:47 AM






Memphis - They are quick when you need cash fast. They are on just about every corner, pay day loan companies. A few years ago, LaTanya Thigpen thought it was the answer to her financial bind.

"When you hear the commercial it looks like, it looks easy. They make it seems like it solves your problems." says Thigpen. It came back to bite LaTonya. She borrowed $200 and ended up paying back almost $100 in fees.

Corky Neale, with Memphis Debt Collaborative, says people often over look the costs.

"Very often they go on for months and months so there is the rollover transaction costs. Ultimately that small amount of cost end up costing a great deal of money." says Neale.

On a $100 loan, the fee could run $15. If you can't repay the loan, it rolls over. If the loan rolls over 3 times, you could end up paying $60 to borrow that $100 and interest rates can run as high as 400-percent.

It's big business. Advisers say there are now more of these quick cash places than there are banks. What may surprise you is just who is signing up for these pay day loans. Advisers say it's not the low income, but mostly working middle class people, teachers and police officers.

At the RISE Foundation, which helps people get their finances in order so they can purchase homes, Brandon Ford advises people to check out other means for cash first.

"You may be able to get an advance from your employer or negotiate directly with your creditors." says Ford.

He says start an emergency fund and cutback on spending. It's a lesson LaTanya Thigpen learned.

"Just live without some things and you will get yourself out the hole." says Thigpen.

Some states are cracking down on the cash advance business, requiring that loans be repaid in full within a certain amount of time. A push is also underway in Tennessee to make changes in the lending practice. Meanwhile, cash advance companies remind borrowers that the loans they make are designed to be short term loans and paid off with your next paycheck.