>> we're back at 8:37, this morning on "today's money" payday loans . you've probably seen the ads offering quick cash when you're in a bind but are they really as easy as they seem? nbc's mara schiavocampo takes a look.
>> matt, good morning. maybe you have car repairs v to pay off bills, just want to buy holiday gifts. if you need fast cash a payday loan may sound enticing but considering this type of loan you need to understand exactly what it involves before you sign on the dotted line. like so many americans, preacher mary love knows what it's like to be tight on cash, so when she started to fall behind on her rent she went for quick fix.
>> i commercial loan would have taken days and i didn't have days.
>> reporter: love took out a payday loan , borrowing against her next paycheck and immediately got the money she needed. these days it seems to be a hot way to get some cold cash.
>> where you get the cash you need fast.
>> where money really does grow on trees.
>> reporter: but for mary love , things quickly spiraled out of control. she says she couldn't repay the loan because the interest rate was far too high for her, on her $400 loan, she ended up paying $1,420 in interest alone about a year later, that's more than 300%, three times what she first borrowed. stories like love's have become more common. the better business bureau says this year alone they've received more payday lending complaints than in the previous two years combined.
>> we tell folks you absolutely have to read the contract, you have to read the fine print , and you got to make sure you understand that contract.
>> reporter: experts say many borrowers don't realize the interest rates can be the equivalent of 600% a year, and some warn that can create a debt trap they can't get out of.
>> a good product is one that at least enables the borrower to get out of a cycle, and this does not let you out of that cycle.
>> reporter: that's not so, says the community financial services association of america , which represents the payday lending industry, and companies insist the process is completely transparent.
>> the customers who use our products, they come into our centers, they understand how much it's going to cost.
>> reporter: he says the instant cash often provides a critical lifeline for those in a dire financial bind like tina, who has taken out and paid off several loans.
>> it was always for a last-minute situation. for me, it works well.
>> reporter: but in mary love 's case, her loan was a personal disaster. she finally went to a credit counselor who helped her pay off the debt.
>> when you get in trouble like this, don't be ashamed to seek help. you're not a bad person because you're not good at managing money.
>> now proponents of the loans say the high interest rates are justified because they're dealing with a population at high risk of default and they're lending money to those who don't often qualify for a traditional loan. if you get into trouble with a payday loan get help from someone like a non-profit credit counselor
>> mara, thank you very much. jean chatzky is "today's" financial editor.
>> good morning.
>> typically, how much are people borrowing?
>> a few hundred dollars typically and on the few hundred dollars they'll pay about 15% of that in fees so on $115 and adds up from there.
>> if i need money on tuesday and not going to get my paycheck until friday, i get the check friday and pay that money back right then, it's not a big problem. it's only a problem if i miss that payment.
>> right, and research that has been done on payday loans shows people don't typically just take out one. the average payday loan borrower takes out nine different loans over the course of a year, those fees can roll over and add up.
>> we heard in the piece about fine print in the contract. what are the things that should jump out at the consumer in that fine print ?
>> you really have to understand what is the rate of interest that you're borrowing on, so if you are looking at a fee of 15%, what does that translate into? often 300% or 400% on an annual basis.
>> if you have a credit card , oftentimes you're allowed to take a cash advance . how does that compare to a payday loan ?
>> it's much cheaper and so is the overdraft protection that you get offered by your bank and you hear me sit here often and say stay away from those things. in a case like this, those things are often much cheaper.
>> the main idea here is only in an emergency, and even if it's an emergency, pay it back quickly and try not to get into a revolving cycle of taking these things out one after another.
>> that's right, used on a short term, these are okay, if you are in a total bind, but otherwise, try to do something else.
>> jean chatzky, thank you very much. appreciate it.
Source: http://video.today.msnbc.msn.com/today/45491243/
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