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The Bad

Any type of loan or credit line costs money

Before committing to any type of loan, make certain that you really need the money. No matter where you choose to borrow cash quickly, you will always be paying interest charges and fees. This is how lenders make profits.

Responsible consumers should have the right to make their own choice regarding where they go for a loan. The government, consumer groups, and any other third parties should not have a voice in this personal decision.

Segments of the population who run the risk of being victimized by this type of financial lending should not be marketed to.

 

Payday Loans can be costly

Here are two advertisements which you may have seen or heard on various media outlets. They depict the costs involved when using a payday advance loan.

Adam is in desperate need of $100 for an emergency car repair. He decides to go to a payday loan store. The lender explains that Adam can sign a loan agreement immediately and will receive $100 in cash, on the spot.

But Adam will have to write a personal check for $115 made out to the lender who will then hold the check until Adam's next payday in two weeks. At that time, the lender will either deposit the check or Adam can redeem the check and fully repay the loan with $115 in cash.

If Adam cannot fully repay the loan at the end of the initial two weeks, he will have to rollover the loan and pay an extra $15 fee. See what happens if Adam has to continuously rollover the loan.

The Truth in Lending Act requires lenders to give borrowers a written statement showing the finance charge (fee to borrow money) and the APR (the cost on a yearly basis) that will be assessed.

 

How to Figure APR for a payday loan

Kelly needs $100 to buy school clothes for her kids. She doesn't have any savings so she's deciding whether to use her credit card or maybe get a payday advance loan. Before making her decision, she needs to compare the APR (annual percentage rate) for her credit card and the payday loan.

Kelly contacts her credit card company and finds out that the APR for her card is 25%. When she goes to a payday loan company, the lender informs her that if she wants to borrow $100, the fee will be $15 for the initial two week time period. He doesn't give her the APR information. How would you calculate the APR for this two week loan?



Don't Forget Your Other Options

FastCash.org is committed to transparency and full disclosure. Consumers who need quick access to immediate funds are best served when they are completely aware and informed of all their options. The following suggestions should be considered:

  • Contact bank or credit union for a personal consumer loan
  • Consider a cash advance on credit cards
  • Estimate the fees you will incur without a loan (NSF, bounced checks, etc)
  • Possible salary advance from employers
  • Borrowing from friends or relatives
  • Arranging delayed payments with creditors

Make the decision for yourself

While payday loans can be costly, remember that you will pay fees and interest on any loan agreement you commit to. First decide if you really need a loan and if the answer is yes, do the responsible thing and investigate all of your options. If you choose a payday advance loan, make sure you will have the money to fully repay the loan at the end of the two week period. This will keep your costs and risk to a minimum.

Our next sections discuss The Good and more importantly, The Ugly.