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The real cost of payday loans

A payday loan can help cover expenses, but it can also end up costing you.

SAN ANTONIO — Many of us are in a different employment situation because of the pandemic. Many of us are scrambling to figure out how to cover rent, food and utilities. That means having to sometimes make some tough choices at the end of the month.

We are still struggling after getting personal loans, using our credit cards or getting a cash advance. Payday loans might need to be an option. Just know upfront they are an expensive way to get money. The Federal Trade Commission warns they charge interest rates up to 700%.

How they work

You need money to cover a couple weeks of expenses until you get paid. So, you get a short-term loan and plan to repay it when you get your paycheck. 

Know that people rarely are able to get just one loan, repay it and be done. The loan might be hard to repay once you add in interest and fees. You probably will need to roll the loan over for another two weeks. Now, you have more interest and more fees. You can end up paying thousands of dollars for a $500 loan.

For example: You need $500. You give the lender a check for $580 that will be held for two weeks until you get paid; $500 for the loan, $80 for the interest and fees. 

In two weeks, you do not have the money, so you give the lender another $80 to get two more weeks to repay the loan. Again, you do not have the money and pay another $80. It takes you 12 weeks, or about three months, to save the money to repay the loan. That ends up costing me $480 in fees and interest on a $500 loan.

Be sure to read the terms of the loan carefully. Do the math on how much you will need to pay if you cannot repay the loan in two weeks. Figure out if a payday loan will help or hurt you financially

If you have a question for Eyewitness Wants To Know, email us at EWTK@KENS5,com or call us as 210-377-8647.

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