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Payday Loans, Payroll
Advance: The Pros and Cons
by Lisa Phillips
April 2008
Advance: The Pros and Cons
by Lisa Phillips
April 2008
Payday loans and Payday Advances are high interest, short term
loans based upon your income and checking account. These loans
are also referred to as payroll advance, deferred deposits, cash
advance or post-dated check loan.
The lender will advance the borrower loan funds and the borrower will
write a personal check drawn on their bank account for the amount of
the loan, plus the fees.
Your check will be automatically deposited at a later date, usually 2 to
4 weeks from the date of the loan or your next pay date. Some
lenders will allow you to extend repayment of the loan for an additional
fee.
Loan Amounts
A Payday loan may be from $100 to $1,500, it varies from state to
state. The tremendous growth of payday loans has caused many
states to regulate the industry. Specific laws now regulate the payday
loan industry. These laws define permissible lending terms and rates
and some states even regulate the amount a payday lender can lend
and how much they can charge for the loan. Other states have totally
banned payday lending. Some lenders have gotten around the laws by
partnering with banks based in other states, such as Delaware.
How does it work
Let’s say you need to borrow $255.00. You will write a post-dated
check in the amount of $300.00 made payable to the lender. This
amount includes the finance fee. The lender will advance you $255.00
for a typical term of 14 days. When that term is expired, the lender will
deposit the $300.00 post-dated check into your account and the loan
will be repaid. The lender may offer the borrower an extension if you
cannot repay the loan in full but additional fees will be added to the
original amount of the loan. It is not cheap. If at all possible, get a
payroll advance directly from your bank. The fees are usually a lot
cheaper.
Loan Qualifications
Most payday lenders require you to have a verifiable form of income
such as employment, social security benefits or retirement benefits.
You will also need a bank account, in good standing, along with copies
of your most recent bank statement. Some may even require you to
have direct deposit.
No credit check is required. However, most payday lenders run your
social security number through a consumer reporting agency called
Teletrack. Teletrack gathers records from businesses across the
country who cater to non-traditional credit consumers, they keep
records of past and present payday loans, among other types of
information.
They are a consumer reporting agency and subject to the same FRCA
Rules as the major credit reporting agencies. You are entitled to a free
report if you have been denied based upon information contained your
report. Many States limit the number of payday loans you can have at
one time. Teletrack will give payday lenders information on your
borrowing habits. To get your report visit: Teletrack.
Fees and Terms
The fees are expensive, there is no getting around this fact. Annual
Percentage Rates are typically around 400%. A loan of $200 for two
weeks will cost you approximately $35.00. The average payday loan is
fourteen (14) days; however, in some instances it may be as long as
thirty (30) days if you are paid on a monthly basis.
The Pros
Payday loans are quick and easy to get if you do not have other
options. It may come in handy during times of emergency. They can be
attractive to borrowers who have less than perfect credit and cannot
qualify for bank loans. Payday loans can be useful for unexpected
expenses such as car repair or medical bill. It is not a supplement to
your regular income. Borrowers who do not have access to credit card
cash advances or savings accounts may find payday loans a benefit.
But these loans should be used sparingly and only in case of
emergencies.
The Cons
It is imperative that the payday loan be repaid as soon as possible,
without any extensions. If you cannot pay the loan on time you will be
subject to even more fees. The annual percentage rate (APR) on a
payday loan averages about 400%. If you are living paycheck-to-
paycheck, as many consumers are, you may get stuck in a cycle of
getting payday loans. Avoid this cycle and use a payday loan only in
the case of extreme emergency.
loans based upon your income and checking account. These loans
are also referred to as payroll advance, deferred deposits, cash
advance or post-dated check loan.
The lender will advance the borrower loan funds and the borrower will
write a personal check drawn on their bank account for the amount of
the loan, plus the fees.
Your check will be automatically deposited at a later date, usually 2 to
4 weeks from the date of the loan or your next pay date. Some
lenders will allow you to extend repayment of the loan for an additional
fee.
Loan Amounts
A Payday loan may be from $100 to $1,500, it varies from state to
state. The tremendous growth of payday loans has caused many
states to regulate the industry. Specific laws now regulate the payday
loan industry. These laws define permissible lending terms and rates
and some states even regulate the amount a payday lender can lend
and how much they can charge for the loan. Other states have totally
banned payday lending. Some lenders have gotten around the laws by
partnering with banks based in other states, such as Delaware.
How does it work
Let’s say you need to borrow $255.00. You will write a post-dated
check in the amount of $300.00 made payable to the lender. This
amount includes the finance fee. The lender will advance you $255.00
for a typical term of 14 days. When that term is expired, the lender will
deposit the $300.00 post-dated check into your account and the loan
will be repaid. The lender may offer the borrower an extension if you
cannot repay the loan in full but additional fees will be added to the
original amount of the loan. It is not cheap. If at all possible, get a
payroll advance directly from your bank. The fees are usually a lot
cheaper.
Loan Qualifications
Most payday lenders require you to have a verifiable form of income
such as employment, social security benefits or retirement benefits.
You will also need a bank account, in good standing, along with copies
of your most recent bank statement. Some may even require you to
have direct deposit.
No credit check is required. However, most payday lenders run your
social security number through a consumer reporting agency called
Teletrack. Teletrack gathers records from businesses across the
country who cater to non-traditional credit consumers, they keep
records of past and present payday loans, among other types of
information.
They are a consumer reporting agency and subject to the same FRCA
Rules as the major credit reporting agencies. You are entitled to a free
report if you have been denied based upon information contained your
report. Many States limit the number of payday loans you can have at
one time. Teletrack will give payday lenders information on your
borrowing habits. To get your report visit: Teletrack.
Fees and Terms
The fees are expensive, there is no getting around this fact. Annual
Percentage Rates are typically around 400%. A loan of $200 for two
weeks will cost you approximately $35.00. The average payday loan is
fourteen (14) days; however, in some instances it may be as long as
thirty (30) days if you are paid on a monthly basis.
The Pros
Payday loans are quick and easy to get if you do not have other
options. It may come in handy during times of emergency. They can be
attractive to borrowers who have less than perfect credit and cannot
qualify for bank loans. Payday loans can be useful for unexpected
expenses such as car repair or medical bill. It is not a supplement to
your regular income. Borrowers who do not have access to credit card
cash advances or savings accounts may find payday loans a benefit.
But these loans should be used sparingly and only in case of
emergencies.
The Cons
It is imperative that the payday loan be repaid as soon as possible,
without any extensions. If you cannot pay the loan on time you will be
subject to even more fees. The annual percentage rate (APR) on a
payday loan averages about 400%. If you are living paycheck-to-
paycheck, as many consumers are, you may get stuck in a cycle of
getting payday loans. Avoid this cycle and use a payday loan only in
the case of extreme emergency.
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