ALTERNAT

IVE

LOANS

PAYDAY LOANSFeatures:

1. The loans are usually for small amounts.

2. The loans typically come due your next payday.

3. You must give lenders access to your checking account or write a check for the full balance in advance that the lender has an option of depositing when the loan comes due.

ADVANTAGES OF PAYDAY LOANS

1. Able to pay bills or keeping things that let you get to work, like your car.

2. Easy to obtain.

3. Fast and convenient.

DISADVANTAGES OF PAYDAY LOANS

1. Interest rate

2. High fees for bad checks

3. Misleading marketing material and loopholes in contracts 

EXAMPLE OF A PAYDAY LOANIf you take out a two-week payday loan for $100 and charged a fee of $10, you would owe $110 at the end of those two weeks. What happens when it takes a year to pay off the loan?

$10 / 14 days = $0.71 per day $0.71 x 365 days = $259

At the end of the year, on top of the $100 you borrowed, you would owe $259.

That means your Annual Percentage Rate (APR) is 259 %.You’re charged $17.50 for $100 borrowed. On a 10-day loan, what is your

APR?

CHECK CASHING STORES

Features:

1. Stores/companies that will cash a check for a fee.

2. Can be payroll check, personal check, refund check and more

ADVANTAGES OF CHECK CASHING STORES

1. Convenient hours of operation, usually open earlier and longer than banks.

2. Quick Access to Cash

3. Offer other services such as post office boxes, mailing, copying, etc.

4. Only pay a one-time fee when you cash your

check

DISADVANTAGES OF CHECK CASHING STORES

1.Charge an average of 3-5% of the check amount in fees

2.Leave the facility with a significant amount of cash in hand.

3. Most check cashing centers are located in more urban neighborhoods, where crime may be more prominent.

RENT TO OWNFeatures:

1. Legal documented transaction where property, such as furniture, consumer electronics and home appliances, is leased in exchange for a weekly or monthly payment.

2. Consumer has option to purchase at some point during the agreement.

ADVANTAGES OF RENT TO OWN1.You can hold onto cash longer, because you’re

making small payments over time, as opposed to making a huge one-time payment

2.You can try out the furniture first before buying it.

3.You can purchase the item at any time during the agreement

4.You can terminate the agreement by simply returning the property

5.Usually no credit check

1. Have to pay delivery and pick up fees.

2. Must buy insurance to cover the items.

3. Overall cost is greater

4. It is NOT a credit agreement but a rental contract, so it does not come under the federal Truth-in-Lending Act's interest rates and finance charge disclosure requirements. 

DISADVANTAGES OF RENT TO OWN

EXAMPLE OF RENT TO OWNExample:

Janet goes to Ivanuska’s Rent Your Own store to rent a TV. The TV she chooses is priced at Nebraska Furniture Mart at $500. Her rental payments are $50.00 per month for 18 months.

$50.00 X 18 = $900

Cost to Rent to Own

PAWN SHOPSFeatures:

1. Pawn stores offer loans, secured by something

of value.

2. Customers bring in an item of value, and the pawnbroker offers a loan based on a percentage of the item’s estimated value.

3. The pawnbroker then keeps the item until the customer repays the loan with interest and any additional fees that may apply.

ADVANTANGES OF PAWN SHOPS

1. Get money very quickly.

2. No credit check needed.

3. No proof of employment required.

4. Defaulting on a loan can never affect credit

scores.

DISADVANTANGES OF PAWN SHOPS1. You only receive a portion of the item’s

retail value.

2. Lose the item if you don’t repay.

3. Interest rate is high because no credit check.