Buyer Beware

The True Costs of Alternative Financial Services

Sometimes, no matter how hard we have tried to prepare ourselves, bad things happen to good people. When there is an illness, divorce, loss of a job, or other unexpected setback, the paychecks may stop coming but the bills don’t.  When you don’t have enough money to pay your monthly expenses, you are faced with some tough financial decisions.  Companies that provide alternative financial services often prey on low-income families, who can least afford the high cost of their services.  If you feel  your only option is to use one of these companies, make sure you read all the fine print and know what you are signing on to.

Alternative Financial Services At A Glance

Check-Cashing Outlets

When you use a check-cashing outlet, you pay the business a fee that is a percentage of the total check you are cashing. This is like paying for something that is already yours to begin with.

Payday Loan Stores

Payday lenders are quite costly when compared with a bank or credit union. A payday lender might charge you $20 to borrow $200 for two weeks.  Then, if you cannot pay this back, you must roll over the loan for another $20 fee plus the high interest on the amount borrowed, which also is rolled over to the new loan.  Consumers typically roll over these loans about six times on average.  This means you could end up paying $120 in fees alone to borrow $200.  Roll this loan over for a full year and you could be looking at paying over 500%  in interest on the amount you originally borrowed.

Rent-To-Own Stores

These stores can be tempting because the weekly or monthly rate seems so affordable and, in time, you will actually own the item. Renting-to-own is actually very expensive, because the length of the loan is usually more than a year and the actual cost is generally two or three times more than the original cost of the item.  Take, for example, a $400 television that you agree to pay $15/week for 65 weeks.  The price you actually pay for that TV is $975, not including sales tax and delivery costs!!

Tax Refund Anticipation Loans (RALs)

Instead of waiting for your tax refund, tax refund anticipation loans offer immediate refunds in return for a high fee. The lender may charge you a loan fee, a service fee and a tax preparation fee.  That can amount to hundreds of dollars of your tax refund that you will never see.