Credit might be tight at the big banks and investment houses, but not at most payday lending firms. Borrowing from a payday lender, however, is not for everyone.

Leslie Pettijohn, Texas’ consumer credit commissioner, and Dan Parsons, the head of the Better Business Bureau of Metropolitan Houston, discussed some of their concerns about payday loans with personal finance columnist Shannon Buggs.

• Few questions asked. To qualify, you need proof of employment, residence and a bank account. If you’ve had each for at least six months, you’re almost certain to get a loan. Some lenders even promise to approve or reject over the phone within a minute.
• Payback is quick. Typically, they come due after seven or 14 days. You are expected to pay back everything you borrowed, plus fees. Partial payments usually are applied to the fees and not the original borrowed amount. When you don’t pay back the total due, the loan and unpaid fees become a “rollover” and an additional set of fees is tacked on to the amount.
• It’s expensive.Current fees are $20 to $25 for every $100 borrowed every two weeks. Calculated as an annual interest rate on the loan, the fees range in cost from 360 percent to 600 percent.
• Little policing of the industry. In Texas, payday lenders register with the secretary of state as credit service organizations, which allows them to escape scrutiny from the state’s banking and consumer credit regulators.
• Pawning stuff can be cheaper.Pawnshops tend to charge 20 percent per month on their loans, which is annual interest rate of about 240 percent. Besides the smaller fees, pawnshops don’t track you down if you don’t repay the loan. They just keep your stuff and sell it to somebody else. Payday lenders call you looking for the money, will debit it from your account and report you to credit bureaus if you dodge collection attempts. If you don’t have anything of value to pawn, get a credit card advance, apply for a payday loan alternative at your credit union or borrow from family and friends.

source: chron.com