Customers at the grocery store all recommend pay day loans as the easy solution for a lack of funds. Could pay day loans be the answer consumers with low bank accounts have been looking for? Is there any harm in using these services? Aren't they better than using credit cards?

Paying a bill with borrowed money is better than receiving bad credit marks because of not paying the bill. This is understandable. However, some financial institutions are willing to make the occasional exception if contacted about the situation. Or there may be a small fee, but not a credit report made. Consider the true cost before making a decision. Compare the cost of using a pay day (or cash advance) loan to the fees charged for taking a cash advance on your own credit card. Can family help? Often those who are forced to use pay day loans are not able to repay the loan by the next pay check and that can lead to a cycle of debt and stress.

How about the cost? According to several sources, including a consumer report by the FTC (Federal Trade Commission) and the CFA (Consumer Federation of America) state that usual the usual APR is between 350 - 650% with some as high as 780%.

A loan of $100 ranges in cost between $15 - $30. If the loan is not repaid by the pay date then it can be renewed with another fee due at each renewal. A loan of $100 can cost $60 in fees after 3 renewals.

It seems that those who use pay day loans do not benefit and there seems to be more harm than good. Based on the warnings issued by federal and consumer organizations it is clear that using pay day loans or cash advances from these businesses can often lead to more debt and problems. Some sites were reported to automatically roll over the loan and only withdraw the renewal fee on the pay date. Other sites surveyed by the CFA required customers to agree in contract to not participate in class action suits or to file for bankruptcy.

If you are having debt problems it is recommended to seek no- or low-cost credit counseling from a local non-profit organization. These organizations can help with reducing current interest charges and lowering monthly payments. If the problem is budget, you should look to a financial planner who can help you to manage the money you do have and avoid using credit at all.

About the author:

Dr. Drew Henry maintains a number of sites about loans, including Bad Credit Car Loans, Bad Credit Home Loans, and Bad Credit Loans Secrets.