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As Tantalizing As They May Seem Payday Loans Can Be Dangerous

By: N. Messe Click author's name for more of his/her articles

These days nearly everyone runs short of funds occasionally. Sometimes that means a short period of inconvenience but at other times it can be devastating. Having to repair a furnace in mid-winter, for example, is an emergency that can't be put off. But where can you get the funds to fix it, especially if you've already run through your savings for other emergencies?

If you've heard of "payday" loans and are considering one of those then run, don't walk, as far as you can from those storefront operations. Because of the way the interest and fees are structured, you could find yourself in a cycle of debt that's nearly impossible to escape.

A payday loan seems harmless at first and you might simply borrow $100 with a fee of $17.50. That can look very good when you need money fast. However, if you can't repay it when it comes due you'll incur additional interest that can reach a cumulative a whopping total of over 900 dollars. You could be paying interest for months or years on that small one hundred dollar loan.

Most Credit Unions are now offering alternatives to payday loans. These loans are typically for amounts under $500 and the monthly payments are small. Interest rates are small, too, and there is typically no collateral required.

If you're not familiar with Credit Unions, they are much like banks but they aren't owned by a corporation. They are owned by their depositors. Their fees and interest rates are typically lower than banks and they see their customers as valuable resources, not cash cows.

Credit unions are safe, too, with each depositor's account insured up to $250,000 by the National Credit Union Administration (NCUA). Because they are non-profit institutions, credit unions are exempt from paying income taxes. This means that they can afford to offer much better savings and interest rates than a bank that must turn a profit for its shareholders. Credit unions usually offer free checking and savings accounts and a loan from a credit union will have a much lower interest rate than one from a bank.

Most credit unions only require that you live within a certain distance in order to be a member. In the past, most credit unions were sponsored by workplaces and membership was restricted to employees of that business. Now the concept has gone a step further to include anyone within a certain location such as a city or county.

In fact, when a credit union does well everyone shares in the profits. Excess earnings are given back to the members (depositors) through higher savings rates, reductions in fees and lower interest on loans.

Becoming a member of a credit union is very quick and easy. By making an initial deposit as small as five dollars and giving out some very basic information, you can become a member of a credit union. And if you do encounter an emergency expense and don't have the cash to deal with it you can borrow from your credit union instead of turning to a payday loan scam.

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About The Author: Enjoy the convenience of online banking with ICCU - the Illinois Community Credit Union - Our goal is to return profits to our members by offering more service with lower rates on things such as Dekalb Mortgages and Sycamore Auto Loans - 815-895-4541 - www.ilcomcu.org