There is one kind of advertisement that I won’t sell on this blog and that’s ads for payday loans. (Unfortunately, keyword-based AdSense will display some on this post, but I can only eliminate a certain number of advertisers.) I’ve made this decision because payday loans often trap people in a cycle of debt and repayment at high interest, and can hasten a downward financial spiral.
However, as I was recently given a post-dated check by a friend (we’d agreed on this beforehand, as it was more convenient for both of us than waiting until their payday), I began to reflect on the costs of bouncing a check.
Bank Fees for Bouncing a Check
The cost to you of bouncing a check depends on who you’re banking with. Wachovia charged $25 last time I checked. Some charge $30. If the check was less than $100, then this is more than 2 weeks interest on even the high-priced 500% APR ($20).
Store Fees for Bouncing a Check
If the check you bounced was for a store, there will probably be another $20-30 fee. Why? Because their bank probably charged them for the having deposited a bad check and they’re passing the cost on to you, the person who wrote the bad check.
ChexSystems, Long-Term Effects of Bouncing a Check
But bouncing a check may cost you more than the up-front fees from your bank and the store. Most banks report bounced checks to a group called ChexSystems, which functions like a credit bureau for banking. A black mark on your ChexSystems report may prevent you from getting another checking account.
Not a problem, you’re set with your own bank? Well, bounce enough checks and your bank may think otherwise. After all, a checking account is a privelege, not a right.
What if I Post-Date the Check?
Unfortunately, banks will try to cash post-dated checks. Businesses probably won’t check the date before depositing the check (and if they do, they’ll probably refuse to take it). Post-dating is an especially bad idea when dealing with collections agencies, which are notorious for promising to honor the check’s date and then turning around and depositing it anyway.
Post-dating only works with people you can depend on to honor your wishes. That’s never a business or a collector. Even friends and relatives may not be dependable. So be very careful and don’t assume that post-dating will keep you from bouncing checks.
So Should I Get a PayDay Loan, Then?
Not if you can help it. Despite their alleged convenience, payday loans are not a good solution. They’re best in situations where you’ve run into a one-time emergency and aren’t able to access your savings for some reason. Unfortunately, that’s not who they’re marketed to.
If you really, honestly don’t have any money, then borrowing more at interest is not a viable long-term solution.
Is one better than the other? What do you think?