August 21, 2009, Newsletter Issue #71: Personal Loan Penalties

Tip of the Week

When you look to a personal cash loan as a possible option for emergency money, you must take great care to use payday cash responsibly. To abuse payday loans is to invite penalties that will put you in harm’s way financially and the dent it puts in your wallet may not be filled for months.

First, depending on the length of repayment, you could face interest rates that can go anywhere from a couple of hundred percent up to, in some cases, thousands of percent. For example, if you are charged $17 for every $100 borrowed (typical fee), that amounts to almost 915 percent for a one-week loan, over 450 percent for two weeks or just over 200 percent for a one-month term.

What’s worse than this? Extending or rolling over your personal loan. You can extend your loan period at the end of the term by just paying the fee again per $100. However, if you get into a habit of this, you could end up paying a lot more than the original amount back to the lender. By using extensions and rollovers, you’re actually using money you could have used to pay off the loan to pay interest only. The original amount continues to remain.

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