Quick Cash Lending – Payday Loans, Auto-Title Loans, Check Cashing Stores
We’ve all seen the late-night adds – somebody leaning over the inside of his car telling the camera how “Joe’s fast-cash place” saved his behind by giving him the money he needed to fix his car, even though it was a week and-a-half before payday; or somebody else describing how “Joe’s fast-cash place” was there for her, when she needed some extra money for pills that her daughter just had to have. They both end the same way “Thanks Joe!” What a great ad.
Both of these ads are trying to tell you that you should borrow money (that you think you need right away!) from stores that are allowed to lend you money (even though they are not really banks) without putting you through all of the hassle that a bank will. It is true that they will lend you money – and it is true that they will do it quickly. What the adds don’t tell you, though, is what that these ‘Quick cash lenders’ will force you to give them, in order to give you the money that you want. They want you to give them: 1) Your next paycheck; or 2) The title to your car; or 3) A set of fees that are higher than any bank would ever legally be allowed to charge you.
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What is quick cash lending?
Quick Cash Lending sounds just like what it is. It is a way to get money very quickly. Unfortunately, it is also the most expensive way to get money. Why is it expensive? Because of all of the fees that the lender is allowed to charge you and the short time-frame that you have to repay the money. The time-frames range from two weeks (payday lending and check-cashing stores) to thirty days (auto-title loans).
More important than how much the fees add up to is the way that these ‘lenders’ trap you into doing business with them over and over again. (even if you want to stop) How does this happen? Before they agree to give you the money, a Quick Cash Lender will have you fill out paperwork that gives them something that you own and need. For a ‘PayDay Loan’ that something will be your next paycheck; for an ‘Auto-Title Loan’ that something will be your car.
If you are getting a Payday loan, you will be forced to write a check to pay them back. The check to pay them back is dated on the date of your next Payday. So, when that payday arrives, your money will already be gone and you won’t have that money to pay the next set of bills that are coming in the mail.
This concept is true for an auto-title loan, too. But, instead of writing a post-dated check, you will give them the title to your car. And, if you don’t pay them back at the thirty day mark (or if you don’t borrow more money from them – also at an enormous interest rate), they will take your car.
Look at it another way: They are giving you money and you are trading them either your next paycheck or your car. Does this even SOUND like a good idea? Once you use a ‘Quick Cash Lender’ it is very hard to stop. In fact, that’s the way their business is designed. The amount you have to pay back is so huge, that you literally HAVE TO borrow more money to do so. That is what’s called a ‘Cycle of Debt’. And for one out of every five people, that uses a Quick Cash Lender, the cycle of debt doesn’t end, until they file bankruptcy.
Why Can’t I Stop Borrowing Money?
Because Quick Cash Lending is designed the way it is, people find it very difficult to use them only that one time. Their advertisements sound like you’ll use them once just to ‘get you out of a jam,’ and then everything will be OK. The problem is: their business model was designed to force you to continue to pay their huge fees because you will be unable to stop borrowing . That is because the items that they make you give up to get the loan (your next paycheck; the title to your car…) are so important to you, you’ll will have to do whatever they say to make sure and hold on to them.
Here’s a short quiz to help you understand how hard it is to use PayDay loans just once:
Question – who can give away their next paycheck and still have enough money to pay their bills?
Answer – Nobody!
And, that’s what PayDay lenders are counting on, when they lend you money. It’s all smiles when you’re walking out of the PayDay lender’s offices with money. But, what do you think is going to happen when your next payday comes and your whole check is going to be given to the PayDay lender? You will have to borrow money from them again. And the cycle will continue. This ‘Cycle of Debt’ will either cause you to lose loads of money, until you get ahead of the game, or you will file bankruptcy. Stay out of the ‘Cycle of Debt’ !!!
What Will Happen If I Get A Payday Loan?
There are a few things that are likely to occur if you get a Payday loan, and most of them are not good.
GETTING A PAYDAY LOAN – LIKELY OUTCOME #1: No matter how much you want to just get one Payday loan, you will be forced to keep going back to them and paying whatever terrible fees they charge for many months. Consumers who use payday loans end up re-borrowing between 8 and 13 times from the same ‘Quick Cash Lender’. Most of the time, these loans all occur back-to-back-to-back. In other words, most people get trapped by the Payday scheme and can’t get away.
GETTING A PAYDAY LOAN – LIKELY OUTCOME #2: You will wish you had been turned down (or never applied in the first place). Research has shown that people who get a Payday loan are TWICE AS LIKELY to file bankruptcy, as those folks who never get a Payday loan at all.
GETTING A PAYDAY LOAN – LIKELY OUTCOME #3: When it comes time for your next paycheck (this is the paycheck that you signed over to the Payday lender to qualify for the loan in the first place), if you try to stop payment on the check (because you can’t afford to do without your paycheck) they will abuse and threaten you, to get you to sign up for another Payday loan.
This is the way that their business is set up. They want to trap you into borrowing from them over and over and over again.
What Does “APR of 390%” Mean, Anyway?
‘APR’ means Annual Percentage Rate. It refers to the Actual rate of interest that you are paying to borrow money and it is always a little higher than the interest rate that you ask for, when you walk into the bank. Why is there a difference? Whenever you borrow money, you have to pay certain fees to the lender. (closing costs, title fees, etc.) Those fees are on top of the money that you want to borrow – but they are just as important as the interest that the lender is charging you. (Just as they would not lend you money, if you didn’t pay them interest; they also would not lend you money, if you didn’t pay their fees)
The Government has decided that you (the borrower) have the right to be told the TOTAL COST of borrowing the money. That ‘Total Cost’ is told to you, in the form of the A.P.R. When you are borrowing money for term longer than 30 days (car loans are typically for 4 or 5 years, while mortgages are typically for 30 years), the APR is only slightly higher than the interest rate and it doesn’t look like a big deal. This makes sense, because you are spreading the cost of those fees over the life of the entire loan.
But, when you are borrowing money for a much shorter term (two weeks in the case of a PayDay loan; or thirty days in the case of an auto-title loan), the difference between the interest rate and the APR is huge. That is why, many PayDay loans are referred to as having an interest rate close to 390% (or higher). Because you are spreading the cost of the PayDay loan over the life of the loan (which is a month or less), the actual cost of the loan is way more expensive.
Check Cashing Stores
There are many places that cash checks for people who do not have bank accounts. They will cash Social Security checks (and checks for other government benefits), paychecks and other types of checks. But, this service does not come without a cost to the person who needs the money. Even though the cost to cash the paycheck may not seem high, these stores also make a lot of money on the other ‘services’ that they provide.
By the time you enter their store to cash your check, they know that you will be interested (and willing to pay too much for) some of the other things that they sell. Those items include:
- Paying your utility bills
- Making wire transfers to a relative
- Taking out a PayDay loan
- Buying a pre-paid debit card
- Buying Money Orders
- Buying pre-paid telephone cards
- Buying tokens for public transit
- Buying postage or lottery tickets
- Even making copies or using the fax machine
There’s nothing wrong with needing to purchase the services listed above. The problems start, when you start going back to places like this for services that you can get somewhere else for free (or for a fraction of the price); or when you start using these places to borrow other types of Quick Cash (like a PayDay or an Auto-title loan)
How expensive can a Check-cashing store get? According to the Consumer Federation of America, in 2006 – A blue-collar worker using check cashing outlets to cash his/her paycheck paid an average $19.66 every week to cash a $478.41 check. Twenty bucks a week adds up to Eighty dollars a month and almost a thousand dollars per year. And this just the amount that people were paying for their paychecks to get cashed. This figure doesn’t include the money that they want you to spend on the other ‘services’ that they offer.
Here is a table for you to use to compare how expensive all of the Quick Cash Lenders really are.
|Type of Quick Cash Loan||How it works||Typical Interest Rate/Fee||What you have to give up to get the loan|
|PayDay Loan||You write a check to the lender for the amount of the loan (plus fees). The check is dated on the date of your next paycheck. The lender WILL CASH THE POST-DATED check, unless you sign for another PayDay loan. The new loan starts of the ‘Cycle of Debt’||300% – 400% (For active members of the military, the most they can charge is 36%. For everyone else, the lender can charge anything they want)||Your next paycheck|
|Auto-Title Loan||You sign your car’s title over to the lender and agree to repay the loan (plus the fees) in 30 days. If you aren’t able to repay the money, you’ll either have to sign up for another high-cost/high-fee loan, or they will take your car.||250% – 300%. (Court costs and attorney fees are usually added to the debt by the company that lends you the money)||Your car|
|Check-Cashing Service||You pay a fee to cash your paycheck immediately (instead of waiting a few days for the check to clear the bank) The amount of the fee is too high, and you are paying for a service that any bank can do in 3 days.||$4.00 for every $100.00 that the check is for. (plus any fees and interest that you have to pay for the PayDay loan that they talk you in to)||Your hard-earned money|
|Tax Refund Loan (also called: Refund Anticipation Loan or RAL). This is when you go to a storefront to get your taxes done, because they promise to get your refund check to you on the same day)||You pay for somebody to prepare your tax return. If you will get a refund, they will give you the refund right away (but, not before they take a huge fee out of the amount that you are owed)||10% – 20% of the amount of your tax refund (fees include: tax preparation fees, interest on the short-term loan, itself and even a fee to cash the check that they use to give you the refund amount)||The Fee for this ‘service’ comes out of the amount of your refund. What they won’t tell you is that there are places that will do taxes for free (if you qualify) and that you will get your refund in less than a week.|
Unfortunately, those ads mentioned at the top of this page (and others like them) don’t tell you the whole story behind Quick Cash Lending. What they don’t tell you is that, because you borrowed against the paycheck that you haven’t gotten yet, you will HAVE NO CHOICE. You have to go to the Quick Cash Lender again and again to pay the next set of bills. That ‘cycle of debt’ can be the beginning of the end for a great many people. Indeed, 20 % of people who use a PayDay lender end up in bankruptcy. Don’t be next!