How to Be Effective with the Market Timing Strategy How to Be Right in Investing

How to Be Extra Cautious When You Urgently Need Money

by
When you need money urgently, comparison shop for loans by looking at both total dollar costs and the Annual Percentage Rate (APR). Payday lenders, for example, typically charge about $15 for every $100 borrowed. So, on a $500 loan for two weeks, you'd pay $75 in interest. That might not sound like a lot of money to pay for a small loan, but it translates to a whopping 391 percent Annual Percentage Rate! (The APR is the effective annual interest rate on a loan after taking into account one-time fees and interest.)
And if you renew or "roll over" the $500 loan for another two weeks, you'd pay an additional $75 in fees. At that rate, in just 14 weeks, you will owe more in fees ($525) than the original loan! "Consumers often roll over the same payday loan several times because they cannot pay the full amount on the due date," said Rae-Ann Miller, special advisor on consumer issues in the FDIC's research division. "These consumers can end up paying significant sums to borrow what started out as a small amount of money."

More by FDIC

Related Tips