PaydayAct

Payday advance loans, also known as cash advance loans, post-dated check loans or deferred deposit loans, are short-term loans that promise to give borrowers cash today in exchange for a fee. They are called payday loans because borrowers often promise to repay the money when they have cash again on their next payday.

In a typical payday advance loan, the borrower writes a post-dated check to the lender, with an amount tacked on for the fee. When the date on the check rolls around, the lender either cashes the check or rolls the loan over for another short term, usually two weeks or a month, for another fee.

The fees on payday advance loans are either figured as a percentage of the amount lent, or as a flat rate per $50 or $100 lent. The fees are typically high enough that the Federal Trade Commission issued an alert to consumers in March 2008 suggesting that they consider lower-cost alternatives before agreeing to a payday advance loan.

For example, a $100 two-week payday advance loan with a $15 fee equates to an annual percentage rate of 391 percent, according to the FTC’s alert. A consumer who rolls the loan over three times would owe $60 on top of the initial $100 loan in the span of six weeks.

Alternatives To Payday Advance Loans

Alternatives to payday loans can include:
Credit card cash advances.
Unsecured bank or credit union loans.
Paycheck advances from an employer.
A Home equity loan or a home equity line of credit.
Personal Loans from friends or family.
Peer-to-peer loans from a service that arranges direct loans between individuals.
Bank overdraft protection that converts an overdrawn check into a line-of-credit loan.
Asset sales. Big screen TVs, nice couches and cars can be converted into quick cash in an emergency.

Military Payday Advance Loan Protections

Payday loans to military service members and their dependents are governed by federal law and a Department of Defense rule. Annual percentage rates charged to covered individuals, which include most fees and charges, cannot exceed 39 percent. Creditors also can’t require the use of mandatory arbitration to settle disputes.

As alternatives to payday loans, military service people and their families may be able to access financial aid from societies like the Army Emergency Relief, the Navy and Marine Corps Relief Society, the Air Force Aid Society of Coast Guard Mutual Aid. The Department of Defense also runs an online Hotline to provide financial advice or guidance to find help for military members.

Consumer Payday Advance Loan Protections

Payday loans are governed by the federal Truth in Lending Act, which requires lenders to disclose the annual percentage rate applied to any loan in writing before the borrower signs the contract. The APR is based upon several factors, including any credit charges for the loan and the length of the loan.

The FTC provides an online contact and a hotline at 1-877-382-4357 to handle consumer complaints. State consumer protection agencies can also field complaints.

Budget Repair Vs. Payday Advance Loans

Some borrowers restructure their existing debts to make them easier to pay without resorting to expensive loans. Some options include:
Loan modifications from lenders. Lenders can sometimes extend a loan’s term, reduce its principal or otherwise adjust its payment terms to make it easier for the borrower to repay rather than default.
Debt Consolidation. Replacing lots of little loans with one big one with a lower interest rate can reduce total monthly payments.

Non-profit consumer credit counselors exist in every state who can help borrowers set up workable budgets or help negotiate with lenders to find more favorable repayment terms. Many provide the service at little or no charge.

Bankruptcy

Some consumers choose bankruptcy, or the immediate legal discharge of overwhelming debts, as a preferable option to taking on new debts, including payday loans, that may be impossible to repay.

Bankruptcy has the advantage of eliminating or restructuring debts to the point where the debtor should be able to afford them, but a bankruptcy remains on the debtor’s credit report for six to 10 years and can impair the ability to take on new credit at reasonable interest rates.

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