When it comes to payday loans, there’s no bigger player than Advance America. Started in 1997, Advance America now has over 2,600 locations across the country and finds itself at the head of a $6 billion a year industry. You may have heard of them and their recent $18.75 million settlement in North Carolina for charging illegal fees and excessive interest. Or perhaps you read one of the many stories from their customers, profiled on the vicious cycle of payday loan debt.
How bad is it? Lawsuits and complaints aside, Advance America’s loans don’t come cheap, regularly carrying an APR of over 390% (in comparison, APRs on credit cards usually range between 12 and 30 percent). A payday loan may be a quick and easy way to get the cash you need to get out of a tough spot, but be prepared for high borrowing costs.
Advance America works like other payday loan companies: After determining eligibility, you agree to a predetermined loan amount, as well as fee and payment structure. You receive the cash within a few days and return to pay off your debt at the end of the loan period, usually when your next paycheck comes through. Fees are usually calculated over a standard 14-day period, and vary depending on the state you live in:
|Loan Fee per $100||APR|
*All values calculated for a $100 Advance America in-store loan repaid over a 14-day period.
Read the Fine Print
Looking just at the APR and loan fees provided by Advance America, however, fails to capture the full story. Everything from the amount you can borrow to your ability to restructure your loan can depend on local laws. For example, Washington state caps your loan amount at 30% of your gross monthly income, and allows you to cancel the loan without repercussion. Texas residents, meanwhile, can borrow up to 35% of their income, but are also charged a 10% APR on the loan principal and are liable for late fees of 5% of the outstanding balance, among others.
Luckily, Advance America breaks down their fees by location on their website, but until you actually fill out an application for a loan and read through a loan agreement, there is no clear indication of late fees or penalties. Meanwhile, the complaints against Advance America continue to roll in. In September, a class action lawsuit was filed against the company for improperly contacting a customer’s employer and seeking his wages for a delinquent loan.
Alternatives to Triple Digit APRs
The Consumer Financial Protection Bureau recently released a report that reviewed over 15 million payday loans over a 12-month period. Their conclusion? Used irresponsibly, payday loans quickly become “debt traps” that lock consumers in a cycle of high interest borrowing. It doesn’t have to be that way. There are alternatives to triple digit APRs, even if you don’t have perfect credit. A few examples:
The Capital One 360 checking account has an overdraft line of credit that lets you pay more than your available balance on your checking account, but instead of charging an overdraft fee, levies a low interest rate of 11.5%. However, they run a credit check when qualifying you for the overdraft line of credit, and you might have a low limit.
Small-dollar loans from credit unions. Many credit unions, especially community development credit unions, make loans of $200-$1,000 with an APR of 28% or less and an application fee of $0-$20. That’s a lot better than the close to 500% APR you could be paying with Advance America. A credit union loan works a little different, too. Instead of two weeks, the loan is usually paid between one and six months, encouraging longer term financial planning and helping you build credit.
Cash advances on credit cards. This can be a fairly expensive option if you need to borrow for an extended period of time. You’ll probably have to pay a cash advance fee, 3-5% of the amount advanced, and most credit cards have higher cash advance interest rates than regular purchase rates. But once again, credit unions come to the rescue. Many credit unions have cards with low cash advance interest rates and no fee.
For example: Spectrum Federal Visa Platinum
- No cash advance fee
- 9.99%-17.99% cash advance APR
- Anyone can join with a $5 donation to the Financial Fitness Association.
- Meant for those who need to build up their credit history
- Requires you to take a 10-question financial literacy course
- No cash advance fee
- Membership is open to anyone in Northwest Federal’s field of membership, which includes government employees and hundreds of companies and partner organizations, or family and household members of those who are eligible.
Seek financial security
Payday loans can be great for getting through emergencies or unexpected financial surprises. But if you find yourself relying on payday loans to make it through each month, it may be worth talking to a financial counselor. A counselor or advisor can help you take a good long look at your finances and start you on the path toward long term financial stability. You may consider some of these options:
- The National Foundation for Credit Counseling lists agencies that provide free and low-cost financial help.
- On NerdWallet’s Ask an Advisor site, you can get advice from certified financial advisors who’ll answer your questions for free.
- You can contact a local financial empowerment agency for counseling in your area.
- If you or a family member is in the military (active duty, Guard or Reserve), you can get up to 12 free financial counseling sessions per issue per year with Military OneSource.