University of Illinois Extension

Avoid Money Traps

Most people don’t like to waste money. If you cash checks at a currency exchange instead of a bank, you’ll pay a fee for that service. If you go to a local convenience store instead of a full-service store, you pay much more per item. If you have no credit or bad credit and you need to finance a car or small loan, you’ll pay an exorbitant interest rate or fees to do so.

If money is tight or you have bad credit, you may be considering using predatory lending. Sometimes called “sub-prime lending” or “fringe banking,” predatory lenders take unfair advantage of someone who needs to borrow money. They usually charge high interest rates or exorbitant fees. Loans seem easy to get, and they often are. Most lenders do not check your credit report or determine whether you can repay the loan. 

Compare Loans

Borrowing money can be expensive. Always shop around to find the lowest interest rate and best borrowing terms. Check the APR (annual interest rate) to find out the cost of the loan on an annual basis. The law requires that every loan, no matter for how long, must state the APR. Be a good consumer and check out all the facts before borrowing.

Payday Loans

Payday loans, also called cash advance loans, check advance loans, postdated check loans, or deferred deposit check loans, are very common. You’ll find companies that offer them in almost every community.

Here’s how they work–A payday lender gives you a loan, usually for two weeks, in exchange for your post-dated check. The loan includes the lender’s interest that is extremely high, 200 percent or more! The lender often will not tell you the interest rate; they will only tell you the fee that will be charged.

For example, if you want to borrow $200, you write a check for $240. The $40 is the interest or fee the lender charges. If you calculate the interest, you will pay 520 percent! When the lender cashes your check, the $200 loan is repaid, and he keeps the $40.

The check is usually dated on your payday. If you can’t repay the loan when it’s due, you can renew it for another time period and an additional fee. To be sure you repay, the lender can threaten to cash your post-dated check. If the check bounces, both the bank and lender will charge you fees.

Title Loans

When you use a title loan, you are giving the title for your car or other vehicle as collateral. Interest rates are usually high. If you can’t repay the loan, the company can repossess your car even if you owe only a small amount. Can you afford to lose your car if you can’t make the payments?

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