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Educational Consumer Tips

Paycheck Advance - Check Cashers - BBB Tips

Author: Better Business Bureau

Are you using or considering using a payday or paycheck advance loan to tide you over until your next paycheck? Those "cash until payday" services sound helpful, but they could push you farther into debt. According to the Federal Trade Commission (FTC), check cashers, finance companies and others are making small, short-term, high-rate loans that go by a variety of names: payday loans, cash advance loans, check advance loans, post-dated check loans or deferred deposit check loans. With payday loans, a consumer writes a check payable to the lender for the amount he or she wishes to borrow plus a fee.

The lender gives the borrower the amount of the check minus the fee. The lender holds the check until the borrower's next payday, when he or she can do one of three things: allow the check to be cashed, redeem it by paying cash to recover the loan plus a fee, or roll it over by paying the fee to extend the loans for two or more weeks. Fees charged for payday loans are usually a percentage of the face value of the check or a fee charged per amount borrowed (typically lenders charge anywhere from $15 - $50 dollars for every $100 borrowed).

Under the Truth in Lending Act, the cost of the payday loans - like other types of credit - must be disclosed. Among other information, a consumer must receive, in writing, the finance charge (a dollar amount) and the annual percentage rate or APR (the cost of credit on a yearly basis). The Better Business Bureau, along with the FTC, advises consumers to consider other possibilities before deciding on a payday loan: "- If you need credit, shop carefully. Consider a small loan from your credit union or a small loan company, an advance on pay from your employer, or a loan from family or friends. - Ask your creditors for more time to pay your bills. Find out what they will charge for that service - as a late charge, an additional finance charge, or a higher interest rate. - Make a realistic budget, and figure your monthly and daily expenditures. Build some savings - even small deposits can help - to avoid borrowing for emergencies, unexpected expenses or other items. - If you need help working out a debt repayment plan with creditors or developing a budget, contact your local consumer credit counseling service. There are non-profit groups that offer credit guidance to consumers for little or no cost. - If you decide you must use a payday loan, borrow only as much as you can afford to pay with your next paycheck and still have enough funds to make it to the next payday."

Better Business Bureau information and dispute resolution services are also available to assist you with inquiries and complaints concerning specific companies. Please contact us if we can be of further assistance. Better Business Bureau serving Central Ohio 1169 Dublin Rd., Columbus, OH 43215 Phone: 614-486-6336 FAX: 614-486-6631 Email: Web: