Bad Credit Pay Day Loans - Good Deal Or Buyer Beware?

May 15, 2010

Bad credit payday loans sound like the answer consumers with bad credit have been looking for? It sounds to good to be true. So is there any harm in getting a payday loan? Lets check some of the facts before we get too excited.

Why Use A Payday Loan?

Some individuals reason that paying a bill with borrowed money is superior than receiving bad credit marks because of not paying
the bill. This is understandable. However, some companies are willing to make the occasional exception if contacted about the situation. Or there might be a late fee, but it should not count against your credit rating.

Are you using the loan for everyday items like groceries or gas? Think about the true cost before making a decision. Compare the cost of using a pay day (or cash advance) loan to the fees charged for taking a cash advance on your own credit card. Can family help? Often those who are forced to use pay day loans are not able to repay the loan by the next pay check and that can lead to a cycle of debt and stress.

How Much Is The Cost?

Several sources, including a consumer report by the FTC (Federal Trade Commission) and the CFA (Consumer Federation of America) say that usual the usual APR is between 350 - 650% with some as high as 780%.

A loan of $100 ranges in cost between $15 - $30. If the loan is not repaid by the pay date then it can be renewed with another
fee due at each renewal. A loan of $100 can cost $60 in fees after 3 renewals.

What’s The Benefit?

Based on the warnings issued by federal and consumer organizations it is clear that using pay day loans or cash advances from these businesses can often lead to more debt and problems. Some sites were reported to automatically roll over the loan and only withdraw the renewal fee on the pay date. Other sites surveyed by the CFA required customers to agree in contract to not participate in class action suits or to file for bankruptcy.

For those who are having debt problems it is recommended to seek no-cost or low-cost credit counseling from a local non-profit
organization. These organizations can help with reducing current interest charges and lowering your monthly payments. If the problem is budget, you should look to a financial planner who can help you to manage the money you do have and avoid using credit at all.

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