Beware of payday loans Published May 17, 2013 By Cindy Middleton 17th Training Wing Legal Office GOODFELLOW AIR FORCE BASE, Texas -- Most people have seen ads for payday loans, cash advance loans, car title loans and many others, on the radio, on TV, the internet and even the mail. Unfortunately, those short of cash may be tempted by the easy terms these types of loans offer. However, these small, short-term loans come at a very high price. Payday loans may look like a good way to get quick cash between paychecks, but they carry outrageously high interest rates. For example, if someone borrows $100 for two weeks. The individual writes a personal check for $115; $15 added as a fee to borrow the money. The payday lender agrees to hold the check until the next payday. When the day comes around, either the lender deposits the check or the person redeems it by paying the $115 in cash or they roll-over the loan and are charged another $15 to extend the financing for 14 more days. The cost of the initial $100 loan is a $15 finance charge and an annual percentage rate of 391 percent. If the individual ends up rolling over the loan three times, the finance charge would climb to $60 to borrow that initial $100. What seems like an easy way to get cash a week or two before a paycheck can get someone into a hole faster than almost any other type of debt. Often the borrower takes out another payday loan to pay for the previous one, creating a cycle of debt. There are other options available for service members short on cash or having trouble paying their bills. Service members have access to loans or grants from military relief societies: the Army Emergency Relief Society, Navy-Marine Corps Relief Society, Air Force Aid Society, or Coast Guard Mutual Aid. Loans from a credit union, bank or a small loan company may offer customers who have trouble making payments and may offer an extension on your bills, but be sure to ask if there will be any late charges, additional fees or a higher interest rate applied. Saving for emergencies can also help avoid the risks of predatory lending. The Military Lending Act limits the fees and interest rate lenders can charge military members and their families for payday loans, vehicle title loans and tax refund anticipation loans. The Military Lending Act caps interest and fees on these loans to an annual percentage rate of 36 percent and prohibits lenders from securing the loan by holding a check, car title or obtaining access to a bank account. Lenders should present military members with a declaration to sign asserting the person is a service member or the spouse or dependent of a service member. Lenders who violate the law face criminal penalties and must return the interest paid on the loan. Even though interest rates are capped for active-duty service members and their families, the costs of these loans are still high and can quickly but a borrower in debt. The bottom line on payday loans: find an alternative. If necessary, limit the amount and borrow only as much as can be afforded to pay with the next paycheck and still have enough to make it to the next payday. For information about credit application, call the Legal office for legal assistance at 325-654-3203. For financial counseling, contact the Airman and Family Readiness Center at 325-654-3893.
