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3 Cards in this Set
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- Back
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Would I have 90 days to pay back a loan secured by my direct deposit paycheck?
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RED FLAG: Some banks and credit unions will use your next deposit to pay back your loan or only give you two weeks to repay. Most people cannot pay a cash advance of several hundred dollars back in full by payday without needing to borrow again. Make sure your bank or credit union is giving you a loan with terms that you can meet without getting caught in a costly cycle of debt.
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What is the APR (annual percentage rate of interest) for this advance?
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RED FLAG: A short-term loan should carry an APR of no more than 36 percent. If the representative you talk to tells you the cost as a fee for every $100 borrowed, ask then the APR, which they must disclose by law. A cash advance with a fee of $10 per $100 borrowed actually carries an APR ranging anywhere from 120% to over 1000%, depending on how long before you pay it back. IF you have two weeks to pay it, the APR is 260%. It can be even higher if there are other fees associated with the loan, like charges for credit insurance or an origination fee.
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How would you determine my ability to pay back a direct deposit advance on time without reborrowing?
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RED FLAG: Banks and credit unions that make cash advances typically approve them if you have your paycheck direct deposited. They know they will get paid back because they can take the money right out of your account. This method of securing the loan does not consider other financial obligations you may have that would make you unable to pay the loan back without borrowing again. You should avoid this kind of loan, especially if it carries an APR over 36%, because you could easily end up paying hundreds of dollars in interest for back-to-back cash advances as other obligations also come due.
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