Research That Payday Loan Before You Sign On The Dotted Line

Online, July 11, 2011 (Newswire.com) - Advertisements for payday loans make this type of loan seem like a fast and easy way to get money when you find yourself in a pinch. Most of the ads say that getting the money is as easy as showing a lender a payday stub, a copy of your driver's license and a blank check.

What they don't tell you is that for many people, paying off that loan can end up taking a lot longer than the agreed-upon length of time, and it can wind up costing you much more than the amount of the loan.

For example: say you need to borrow $250. You write the payday loan guy a postdated check for the amount of the loan, plus a fee. Then the lender will either deposit the money into your checking account, or hand you the cash. On your next payday, he'll cash that check, unless you extend the loan. If you extend the personal loan, you will pay additional fees.

All payday loan lenders are required by the Truth in Lending Act to disclose the cost of the loan in writing before you sign on the dotted line. You must be given this information in terms of the finance charge and annual percentage rate. But even so, you may not fully understand how expensive these loans can be. Some payday lenders can charge more than 500 percent.

A 2006 report by the Center for Responsible Lending stated that a typical payday loan borrower will pay $793 in interest on a $325 loan, if the loan is rolled over more than once. Borrowers quickly get into trouble by taking out new payday loans in order to pay the old ones.

Although the rates and fees can trip up the average borrower, payday loans can be useful when you're in a bind - but just be sure you can pay it back, in full, in the allotted time. Don't allow yourself to get sucked into this painful pattern.