Image: Tengku Bahar/AFP/Getty Images
About This QuizYou have not been paying much attention to your finances and suddenly an expense that you were not prepared for hits you broadside. You know the bank is not going to be any help this time. Should you visit one of those payday loan places?
What should you keep in mind when considering a payday loan?
A payday loan is a great way to get some easy money.
Never consider a payday loan except for a real emergency.
There are many options to find short-term financial help. Payday loans should be considered only in an emergency.
A payday loan is a good way to cover unusual expenses for a month.
How many payday loan locations are there currently in the United States?
According to Community Financial Services Association of America, there were more than 22,000 payday loan locations in the United States at last count. With so many locations to serve you there should be one close by.
What is the dollar amount of loans granted per year by payday lenders?
According to Community Financial Services Association of America, some $40 billion worth of payday loans are granted in the United States each year. With such high fees, they surely made a huge profit on those loans.
What is the typical amount of a loan that you can arrange at a payday loan location?
$150 to $500
$100 to $500
$50 to $500
The typical amount of a payday loan ranges from $50 to $500. The term for repayment is usually two weeks.
What do payday loan locations require from you as loan security?
They usually register a temporary lien on your car.
They do not require any assets to secure the loan.
Payday loan companies do not require any assets to secure a loan. They will require only contact, banking and employment information along with contact information of friends and family as references.
They will put a hold on your credit card equivalent to the amount borrowed.
How do payday lenders normally asses their fees for providing a loan?
$15 per $100
The most common fee assessment is $15 per $100 borrowed. That works out to an extremely high rate of interest.
$15 per loan up to $500
$10 per $100 per week of loan
What is the usual method used to repay a payday loan?
You will have to return to the location where you borrowed the money on the payment due date.
You can go to any of locations owned by the same company and pay your loan on the due date.
You leave a check for with the loan location and they cash it on the due date.
Most locations will require that you leave a postdated check for the loan amount plus fees when you arrange the loan. They will cash or deposit your check on the due date.
What can you do if you realize that you do not have enough money in your account to repay the loan?
Hope that they will not find you when your check bounces.
Go back before the due date and rollover your loan so they hold the check longer.
Most locations will allow you to rollover the loan for another 14 days, but they will make you pay another fee for that service.
Go to another payday loan company to get enough to deposit in your account so the check does not bounce.
What is a very attractive feature of payday loan companies besides ease of acquiring a loan?
You will be impressed by their friendly and courteous service.
You will be impressed by extended hours and convenient locations.
One of the most attractive features of getting a payday loan is you can go there after work and on Sundays. Often locations are open 24 hours a day.
You will be impressed with their reasonable fees based on the service that they provide.
What do you have to make sure of before you visit a payday loan outlet?
Make sure your credit score is 400 or more.
Make sure you have the phone number of your bank branch so they call to check your credit.
Make sure to relax as these lenders do not usually bother to check your credit.
You need not worry if you have bad credit, because most of the payday loan businesses do not check your credit. The privacy and speed of service along with no credit hassle makes them attractive to people with poor credit.
What is a typical Annual Percentage Rate (APR) calculation for that $100 loan from a payday loan business?
APR equals 391 percent
The APR on a $100 loan works out to 391 percent and that is a lot of gravy to pay for a small short-term loan. This is the reason that you have to think hard and consider options before you take what appears as an attractive loan.
APR equals 352 percent
APR equals 326 percent
What happens if you have to rollover a payday loan after paying 391 percent interest?
The extra fee just doubled the APR.
The APR remains the same but the same money just cost you more.
Rolling over your loan to allow another two weeks to repay does not affect the APR unless the second fee is higher than $15. However, that loan just put you in debt a little more because of the additional fee.
The extra fee you pay boosts the APR to 450 percent.
What is good news surrounding the controversial way payday loan companies charge for loans?
Stiff competition has brought fees down at many loan locations.
Consumer boycotts of payday loan offices have forced them to reduce fees significantly.
Some state governments have passed laws to regulate payday loan company rates and fees.
Some state governments have enacted laws designed to regulate rates and fees charged by payday loan companies. Oregon for example has enacted legislation to restrict APR to 36 percent for small loans.
What is another restriction applying to payday loan companies that you should know about?
They are now limited to only one rollover per loan in any three-month period.
They are prohibited from charging more than 36 percent APR to military personnel.
Payday loan companies are prohibited from charging more than 36 percent APR to military personnel. The Federal Trade Commission advises military personnel to seek financial assistance from military organizations that offer emergency money to members.
They are prohibited from granting more than one small loan to the same person in any calendar month.
What is the best alternative available to an individual instead of resorting to a payday loan?
Join a credit union and secure a small loan from them.
Many credit unions now offer small loans at very attractive interest rates that are substantially lower than any payday loan rate. Some credit unions even have special plans that help you get out of debt, save money and manage your finances.
Take a cash advance on your credit card.
Make do without the money until you are paid.
Tengku Bahar/AFP/Getty Images