Working World

You’ve Seen the signs. “Get Cash—Fast! $50-$500. Help Until Payday!” Payday loans might seem like a gift, but they are usually the worst choice in a cash-flow emergency.

It seems so easy. You write out a check for the amount you need plus the fee, post-date it, and the lender agrees not to present for payment until your next payday. If you can’t pay the money back on the agreed date, no problem. For an additional fee, you can extend or rollover your loan. Some larger outfits do this electronically, using your checking account.

Unfortunately, payday loans, whether handled by personal check or wire transfer, are a very expensive way to obtain credit. Interest rates often run as high as 400 percent calculated annually. They can run even higher. Very few states regulate this type of lending, and efforts to control rates and practices on the federal level have met formidable resistance. Military employees are the only category of worker protected by a cap of 36 percent on loans they negotiate.

Instead, if you are desperate for cash, try your employer credit union. They will certainly offer better terms. Another fallback is your checking account. Some banks offer bounce protection. It is costly and does not guarantee the bank will pay the overdraft, although usually it will if your account history warrants this indulgence. Others offer overdraft protection through a credit card tied to the account. Even with a set fee and interest while the charge sits on your credit card, this route is much cheaper than a payday loan.