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Pay-day Loans, Avoid the Fee

Updated on November 19, 2010

Need Cash? In a hurry? Why not take out a cash advance or pay-day loan?  Oh that’s right, every-one knows it’s a suckers bet. That's why there are over 30,000 cash advance/pay-day loan outlets registered in the US that lend you your own money (www.marketresearch.com). Don't be too quick to judge, as these establishments are popping up more and more in this depressed economy. For whatever the reason you may need cash ASAP, borrowing your own money and paying extremely high interest on it is a cyclical trap that keeps you stuck in the system. If ever the need arises, do whatever you can to find an alternate solution. Wether it be selling something you own, cutting out something you may not need, re-arranging the order you pay your debts, anything but take out an advance from yourself.  Check out some of my hubs about debt management, saving and investing for more tips.

In principle it seems innocent.  You anticipate a date you get paid from your job, but need the cash now, so you say, front me the money today and then you keep the paycheck when it arrives. When you look at the interest from one advance, lets say it amounts to $150, it may seem alright, since you really need the $850 you're left over with. People tend to not extrapolate a single paycheck into the bigger picture.  Maybe this will help.  If you were to do this for a year, you would essentially be paying $4,000 to have your money.  You're now taking a 15% pay-cut at work.

Where the trap occurs is trying to break the cylce. Now instead of getting paid every 2 weeks, you are going to have to wait 4 weeks to get paid. This is because you already got paid up-front, work two weeks, (and that paycheck that would have come, goes to the lender), then, work two mork weeks and then finally get paid. Not many people without financial troubles can manage that difficulty successfuly, I don't see how those with financial troubles could either. Becuase that time gap between cash flow is so difficult to manage, often times the cycle repeats, over and over until now the amount of money you pay for interest, keeps you from paying your other bills, which in turn, keeps you in the cycle, over and over.

But if you must, there are some things you need to watch out for. Pay-day lending is legal in only 37 States. Most States have specific laws that limit the amount of interest charged, although the APR often times approach's 1,000% annualized.  Be mindful of fixed fees. A lot of pay-day lenders have avoided regulation by structuring the money they charge, similar to that of traditional bank fees. S.  For instance, $15 fees for $100 advance. Similar to a pay-day loan are Title loans, certain services by Pawn shops, Tax refund loans, etc, which all require you to pay to have your own money. So if you absolutely must borrow from yourself, do whatever you can to get in and out and avoid the trap. You don't want to turn into a customer.

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