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Check Cashing and Payday Loans

Question: When is it okay to use check cashing or payday loans? Do I have other options?

Answer from Melanie Dressel, CEO and President, Columbia Bank

Using a check cashing business is a very expensive service. Using a check casher can quickly add up to nearly $800 per year for a person who regularly uses this option. Most banks provide free or affordable checking services. The most important way to determine what is right for you is to sit down and discuss options with a couple of different banks.
 
Payday loans should only be used when absolutely necessary. This is an expensive form of loans, which can quickly result in an endless cycle of debt. The better option would be a credit card used only when necessary and paid back as quickly as possible.
 
There are many financial resources available in most communities that educate consumers about the best way to access financial services. A good place to start would be calling the United Way office in your area for a referral to help.


Learn How to Use Financial Services Wisely

Talk to a credit counselor. Consumer credit counseling agencies can provide free help to find you a fair loan, talk to a real lender, and guide you through the process without hidden fees or scams.  

Consider the overall cost. Interview several lenders and compare prices before you choose one. Cash advance and payday lenders may seem like a good deal, but expensive fees and high interest rates can add up quickly.
  • A credit union or bank is usually the easiest and least expensive way to cash a check. Many offer free checking or savings accounts and no check cashing fees. Some credit unions also have short-term loans like payday advances but with lower interest rates. But remember that even with a bank account you can get stuck with overdraft fees and other charges that can get you into financial trouble. Learn about opening a bank account.
  • Check cashers often pocket about 2-5 percent of your check. These fees add up especially if you’re cashing multiple checks or doing it every payday.
  • Payday loans often include very high fees. Lenders can charge you anywhere from $15 to $70 plus additional fees for late payment, making it difficult to pay back when you get your paycheck. Their version of credit costs about 30 times the annual interest rate of a typical credit card.
Recognize predatory lending before you sign. Catching a scam before you agree to the terms can save you years of unnecessary credit problems. Walk away if any of these red flags come up:
  • You are told this is your only chance to get a loan.
  • They say they can solve all of your credit problems.
  • The final costs are not what you originally agreed to pay.
  • You are given a blank or incomplete contract to sign.
Stop the cash-advance cycle. There are ways to prevent financial problems from occurring and ways to take care of them safely if they do. Before you borrow, consider some of these alternatives:
  • Build an emergency fund to help you save and cover any cash-flow gaps.
  • Make a budget and get rid of extra expenses.
  • Before you’re late on payments, talk to your lender or the creditor.
  • Wait to buy large items until you have the cash.
  • Apply for available assistance programs in your community.
  • Ask friends and family for short-term help, or look into an affordable credit card or small loan through a credit union.
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