Fast cash loans come at a high price

By Cindy Petersen, University of Minnesota Extension Service

ST. PAUL, Minn. (10/31/2006) - You need an extra $200 to get you through until pay day. A fast cash loan from a check casher or finance company is a quick, easy way to get it.

Called payday, cash advance, or check advance loans, fast cash loans are small, short-term, high-rate loans that come at a very high price. In the long term, they may cost more than you can afford to pay.

There are other alternatives, such as asking creditors for a payment plan. If it's set up in advance, there may be no finance or interest charges attached and you stipulate how much you can afford to pay. But follow through on the plan.

Plan ahead, and save regularly for the unexpected financial emergency. For example, put money from each paycheck in a savings account, save loose change and put it in a bank or jar, save tips or bonuses. By putting the amount of the fee that would be paid on a $200 payday loan in a savings account for six months, you would have extra dollars available when needed.

The Federal Trade Commission offers some additional options:

• Compare credit offers. Look for credit offers with the lowest annual percentage rate. For example, consider a small loan from a bank or credit union, an advance on pay from your employer, or a loan from family or friends. A cash advance on a credit card may also be a possibility, but may have a higher interest rate than other sources. Check out the terms before deciding on what is best for you.

• Ask creditors for more time to pay your bills. Find out if there is a charge for this service such as a late charge, an additional finance charge or a higher interest rate.

• Make a realistic budget. Include your income from all sources, keep track of monthly and daily expenditures, and build in savings.

• Find out if you can get overdraft protection on your checking account. This can save money if you're short on funds and make a record keeping mistake. Overdraft protection can help protect you from more credit problems. Again, check into the terms.

• Contact your local consumer credit counseling service. Select a service that is available at little or no cost. Also check with your employer, credit union, faith community or housing authority for low or no cost credit counseling programs.

• If you decide you must use a payday loan, borrow only the amount you can afford to pay with your next paycheck and still have enough money to make it to the next payday.

Media Contact: Julie Christensen, U of M Extension Service, (612) 626-4077, reuve007@umn.edu

NOTE: News releases were current as of the date of issue. If you have a question on older releases, use the news release search (upper left-hand column of the News main page) or the main Extension search (upper right of this page) to locate more recent information.