The Five

Payday loans are also called "cash advance loans," "check advance loans," "post-dated check loans," or "deferred deposit loans." But they all pretty much mean the same thing. In the case of online companies, you apply for a loan through the Internet. If you're approved, the money is wired overnight into your checking account. The loan is usually for one to four weeks — until your next payday. When the loan is due, the company takes the amount you owe — plus a fee — out of your bank account. You can "roll over" the loan to the next payday, but you have to pay another fee. But there are some facts you need to be aware of. You won't see these in the ads for payday loans. And you may have to search the "fine print" on the company websites to find them. I call them the Five Hard Truths About Payday Loans. Hard Truth #1: A payday loan will not solve all your problems Remember, it's just a short-term loan. And the quicker you can pay it back, the better. Don't keep rolling over the loan and racking up the fees. But you're an adult. You can decide for yourself how you'll use the loan money and if you can pay it back when you get your next paycheck. Hard Truth #2: You can't get an unlimited amount of money Don't expect to get thousands of dollars with a payday loan. Most loans you get will be about $100 to $500 — enough to get most people through a crisis until the next payday. Some payday loan companies advertise that you can get $1,000. True, but don't expect to get that much the first time you do business with them. Once you become a regular customer, they may raise the amount you can borrow -- as long as you're making enough in your job. Which bring us to ... Hard Truth #3: Not everyone can get approved Here's the deal. They're called "payday loans" because they're for people who have jobs and get a regular paycheck. If you don't have a job — or other income like Social Security — you're not going to get one of these loans. Also, your job has to pay you enough. If you earn about $1,000 to $1,200 per month, you should be okay. But these companies have other requirements you have to meet, and for good reason. They don't know you, they've never met you, so why are they trusting you with their money? Because you prove you can pay the loan back. So you'll need to show them you have a job or other monthly income ... you'll need a checking account ... you need to live somewhere and have a phone number ... and you can't be a complete deadbeat on the run from the law. Sound reasonable? Sure. And don't worry too much about credit problems. They care more about your current ability to pay back a loan than about your past troubles with credit. That's a relief! Hard Truth #4: These loans don't come cheap In general, you'll pay up to $30 for every $100 you borrow. Now, some pencil-pushers will tell you that's like paying an annual percentage rate of 390% or 780% or some such number. They'll say it's outrageous when you compare it to getting a mortgage at 6% a year, or paying 18% on your credit card charges. Okay, but you're not taking out the loan for a year — just a few weeks at most. So look at the cost of taking out the loan as a service charge. You alone can decide if it's worth it to you. Want an example? Let's say you have three bills due on Wednesday, but you don't get paid until Friday. If you pay your bills late, you get hit with late charges. If you write the checks anyway, and there's not enough money in your account, the checks will bounce and you'll have to pay fees for that. Bounce one check and it might cost you $60. Bounce three checks and it's $180! Now compare that with paying, say, $50 or $60 to borrow $200 to cover your bills until payday. It makes a lot more sense to get the short-term loan now than to get hit with all those charges later. What about "overdraft protection"? Your bank would love to charge you extra for the service of covering you when you write checks for more than you have in your account. And why not? Some overdraft plans charge fees as high as $35 per overdraft! It's a huge money-maker for banks. In fact, the biggest banks earn about $1 billion a year on overdraft fees. What your bank doesn't want you to know about payday loans is that they may be cheaper than the bank's overdraft protection plan. No wonder so many banks are raising a fuss about payday loans — it's competition for them! So before you think about using your bank's overdraft protection plan, take a close look at the cost. You may find that a payday loan will save you some money. Hard Truth #5: All payday loan companies are not the same. It would be nice if you could just pick any payday loan company and know you'll get a good deal. Sadly, that's not the case. I've scoured the Internet looking for the best companies. I've looked at what kind of loans they make, what their fees are, what kind of service they offer, and whether they're easy to use. After reviewing dozens of these websites, I'm happy to report that you have some good choices out there. There are also some questionable companies, but we'll leave those for the authorities to deal with. If you do your homework, getting a payday loan may be just what you need, saving you money in the long run. Wishing you all the best in solving your cash flow needs!