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Are PayDay Loans Cheaper Than Bouncing a Check?

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?

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November 1, 2009 at 2:13 pm

{ 6 comments… read them below or add one }

Don October 23, 2009 at 9:42 am

I don’t remember anything like PayDay loans as a kid. I’m amazed that these types of businesses aren’t regulated. Seems like a perfect industry the government should be regulating.
.-= Don´s last blog ..Car Pooling to Save Money and Reduce Gas Prices =-.

J. Money October 23, 2009 at 3:45 pm

Anytime I hear “PayDay Loan” I seriously want to vomit. I know they’re all some people have, but 9 times out of 10 the customer loses. It’s one thing I can say for certain that I absolutely hate. And there aren’t many things this happy person hates 😉
.-= J. Money´s last blog ..Weekly Roundup: Millionaires, High School, & Debt Free Days =-.

Mrs. Money October 23, 2009 at 6:55 pm

Also, if you write checks to places like Walgreens and it bounces, they may put you on Telecheck, which is a system that alerts other retailers to not take your check! I’ve had many people come in angry, thinking it was the bank. 🙂
.-= Mrs. Money´s last blog ..Getting a New Job =-.

Credit Card Chaser October 23, 2009 at 7:30 pm

Good question actually as most people (me included) have the initial reaction that never under any circumstances should one use a payday loan but to be honest there can be things that are worse than utilizing a payday loan even with their obscene interest rates.
.-= Credit Card Chaser´s last blog ..House Votes to Move CARD Regulation Start Date up to Dec 1st =-.

Sallie's Niece October 28, 2009 at 5:44 pm

I was struggling with payday loans so bad when I first started my blog. I made okay money but was just ridiculously inept at keeping track of it. It seemed okay at first but once I had to pay the first one back, I took out a second one, and a third, and well, got myself in a nine month cycle after that. Dumbest mistake ever. I can sympathize with those that have no other means of paying the rent, etc. but I would rather bounce a check then go into that dreaded cycle again.

Rosa October 29, 2009 at 6:29 pm

If people are writing checks they *know* will bounce, a payday loan probably is a better option – at least they tell you up front how much it’s going to cost.

A few years ago, a roomate of ours who often wrote small checks bounced a big check – and the bank went ahead and ran 9 small ones after it, that all bounced. $300 in fees.

She could have gotten a payday loan that would have covered all of them for about $40 at the local pawnshop. On the other hand, if she were the kind of person to think “gee, I don’t have enough cash to pay my cell phone bill, what’s the best way to do that?” she would not have had a bunch of little checks floating around she wasn’t sure would go through, either.

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