December 21, 2001

Payday Loans A Costly Source of Credit

The Federal Trade Commission has issued an alert to all consumers regarding the risks and deceptions of obtaining a payday loan or short-term loan.

"Consumers are bombarded by payday loan ads almost everyday on the radio, television, the Internet and even in the mail", says Debra Pankow, NDSU Extension Service family economics specialist. " Payday loan ads are everywhere and those loans come with a very high price."

A payday loan is a short-term time credit that is often used by consumers to meet unexpected financial emergencies or other temporary cash flow needs. Because of financial circumstances and needs, some borrowers are not deterred by the high annual percentage rates (APR) that are disclosed, notes Pankow.

"Some payday lenders have been criticized for such things as failure to properly disclose the costs of the loan, failure to ascertain whether the borrower is in a position to repay the loan in accordance with its terms, unlimited and costly renewals of the initial loan and the use of intimidation and unwarranted threats of criminal prosecution in loan collection", Pankow says. "But under the Truth in Lending Act, all costs of the loan must be disclosed and among other information the borrower must receive in writing, the finance charge (a dollar amount) and the annual percentage rate (cost of credit on a yearly basis)."

There are alternatives and possibilities available in choosing payday loans, Pankow says.

• When you need credit, shop carefully. Compare offers. Look for a credit offer with the lowest APR.
• Consider a small loan from your credit union or small loan company, an advance on pay from your employer or a loan from family or friends.
• Find out if you have, or can get, overdraft protection on your checking account.
• Make a realistic budget, and figure your monthly and daily expenditures.
• 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 to make it to your next paycheck.

Anyone interested in obtaining more information on payday loans can contact their local extension agent or Debra Pankow at (701) 231-8593.

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Source: Debra Pankow, (701) 231-8593, dpankow@ndsuext.nodak.edu
Editor: Rich Mattern, (7010 231-6136, Richard.Mattern@ndsuext.nodak.edu
Writer: JJ Camarillo, (7010 231-8371, Camarillo45@Hotmail.com