Payday Loans

You’ve probably heard the advertisements on the radio or seen them in the newspaper:

NEED CASH UNTIL PAYDAY?
YOU CAN GET $50 TO $500 WITHIN 15 MINUTES!
NO CREDIT CHECKS.

SOUND APPEALING? Today there are many companies offering to make "payday loans," "check loans," or "payroll advance loans." These are all just different terms for the same type of loan transaction.

If you are considering a "payday loan," keep reading…..

Before You Begin….

These loans are not an effective solution for your long term monetary needs!

Payday loans may be helpful when you are having temporary cash flow problems or are facing a financial emergency and need money on a short-term basis. You should attempt to pay your loan in full when it matures. If you are unable to do that, you should make every effort to pay at least part of the amount financed before you renew the transaction.

Interest Costs you money!

It's important to pay particular attention to the interest rate on payday loans. The rate on a payday loan may be 500% per year or more. Borrowing $200 for 2 weeks at 500% will cost you $38.36. Compare this to borrowing $200 for 2 weeks at 36% ($2.76) or 12% ($.92).

If this loan is refinanced four times, the cost difference increases dramatically! In fact, it will cost you nearly $200 to borrow $200 for ten weeks:

YOU SHOULD AVOID TAKING OUT MULTIPLE PAYDAY LOANS!

If you already have one payday loan outstanding, you should avoid taking out another such loan. When you have more than one payday loan outstanding, you may find it very difficult to pay the required finance charge payments, much less paying all or a portion of the amount financed when the loan comes due. If you need a larger, longer-term loan, you should seek other, more traditional, lending sources.

PAYDAY LOANS: HOW THEY WORK

Payday loans work like this:

You fill out an application and provide the lender with items such as paycheck stubs and a photo ID.
You sign a loan agreement, write a postdated check to the lender, and receive your money.
Your check is held until your loan payment is due - usually two weeks. The lender then deposits your check - unless you have replaced the check or have already repaid the loan.

The loan agreement that you are required to sign is a legal document that obligates you to repay the loan. It also sets forth a lot of important information. Be sure to take note of the following items:

Amount Financed: The amount of credit provided to you or on your behalf. (This is typically the amount of cash you will receive.)

Finance Charge: The dollar amount the credit will cost you, or the amount of interest you pay for receiving the credit.

Annual Percentage Rate (APR): The cost of your credit as a yearly rate. Because these loans are small, short-term transactions, the APR is typically quite high. In Wisconsin, there are no laws that limit the interest rate that a lender can charge.

Total of Payments: The amount you will have paid after you have made all payments as scheduled. (This is the amount that you will write your postdated check out for.)

YOUR RESPONSIBILITIES

The loan agreement you sign legally obligates you to repay the loan. Make sure to read the contract before signing it and retain your copy for your records.

If you have not renewed the loan or paid it in full, make sure you have sufficient funds in your checking account on the due date of the loan so your check clears when the lender deposits it.

If you cannot or do not repay the loan, the lender can seek a money judgment against you for the face amount of the check and court costs; and, if they were disclosed in the contract, any late charges, interest after maturity, and NSF fees. Once a money judgment is obtained, a lender may attempt to garnish your wages.

Many lenders also list past due accounts with the credit bureau. This may affect your ability to get credit in the future.

OTHER CONSIDERATIONS

If you pay the loan in full prior to its due date you are entitled to a partial refund of the finance charge.

If you are married and your spouse does not sign the loan agreement, the lender is required to give your spouse a written notice that you obtained the loan.

IF YOU HAVE QUESTIONS

The Department of Financial Institutions (DFI) is a state agency that licenses and regulates companies that make consumer loans in Wisconsin where the interest rate is over 18% per annum. This includes the payday loan companies. Wisconsin residents may contact DFI Licensed Financial Services at 608-261-9555.

DFI also licenses and regulates adjustment service companies, commonly referred to as debt counselors or consumer credit counselors. These companies help debtors set up and keep on a budget. A list of the adjustment service companies licensed by DFI. Wisconsin residents may also contact DFI Licensed Financial Services at 608-261-9555 for the name of the adjustment service company nearest you.