By Kevin Lonergan, Garrison Legal Assistance Attorney; Jon Cook, Accredited Financial Counselor (AFC), Army Community Service; and Lisa Ware, MBA, AFC CandidateApril 19, 2011
ROCK ISLAND ARSENAL, Rock Island Ill. - When borrowing money, it is important to consider your options carefully.
A payday loan can appear quite attractive on the surface. Payday loans are quick and easy and you get the cash you need. You don't have to risk being turned down or lectured about emergency savings. You can even get service over the internet. However, this quick and easy cash option can come at a hefty price.
A payday loan is essentially a cash advanced secured by a personal check or paid by electronic transfer at a very high annual percentage rate. For example, you might pay $15 for a $100 loan due in two weeks. That's already an APR of 391 percent (see footnote 1). And if you can't come up with the cash to pay the $115 for the $100 loan you received, they will be happy to "roll over" the loan and add another $15 to the loan every two weeks until you can pay the loan off. Within a few months, you can easily end up paying more in fees than you originally borrowed.
It is important to understand in all cases what you may end up paying for the money you borrow. For example, a car title lender may take your car title as security, which means if you can't pay you may lose your car. Or if you add up all the payments on rent to own furniture contracts, they may add up to more than what the furniture is worth.
So what are your alternatives'
(Check with each program for specific eligibility requirements):
- Rock Island Arsenal Army Community Service can assist with developing a budget or a debt repayment plan
- Army Emergency Relief "Commanders Referral" program: The commander or first sergeant can request an AER loan for the Soldier of $1,000 or less at no interest to be paid back in a year or less. Only the Soldier can request this type of assistance.
- AER regular assistance for non-receipt of pay and other emergencies can be sought by a Soldier, retiree, or their spouse (with power of attorney or other forms of permission of the Sponsor). There is no amount limit and all loans are at 0 percent APR.
- Navy and Marine Corps Relief Society "Quick Assist Loan" for up to $300 payable in 10 months.
- Air Force Aid Society "Falcon Loan" for up to $500 payable in 10 months.
- Coast Guard Mutual Aid "Quick Loan" for up to $500 with flexible repayments.
- Military credit unions and banks give personal loans at low interest rates.
- Family members could possibly loan you the money.
- The Federal Trade Commission Consumer Alert on Payday Loans states, "Contact your creditors or loan servicer as quickly as possible if you are having trouble with your payments, and ask for more time. Many may be willing to work with consumers who they believe are acting in good faith. They may offer an extension on your bills; make sure to find out what the charges would be for that service - a late charge, an additional finance charge or a higher interest rate." (see footnote 2)
1 - Legally, there is a cap on payday loans to military members. Since 2007, federal law prohibits charging more than 36 percent interest on the principal loan amount to military members. "If you have any further questions regarding the legality of military payday loans please consult the Legal Assistance Office. For appointments call paralegal Venita Gatheright at (309) 782-1443." Military Payday Loans, by Kevin Lonergan, Garrison legal assistance attorney
2 - FTC Consumer Alert, "Payday Loans Equal Very Costly Cash: Consumers Urged to Consider the Alternatives," March 2008