Objective: Students will identify the purpose of check cashing facilities and the reasons to avoid them. October 24, 2011

Elbow Partner Turn to an elbow partner and share: What is the difference between Interest Rate and Annual Percentage Yield (APY)?

A Loan or Not a Loan Check Cashing Services will cash a check for a fee. Check Cashing Services are not considered a loan by the federal government, they are considered a service. Because check cashing is not a loan according to the federal government they do not have to quote an APY However, one of the main services Check Cashing Services offer is the ability to write a post-dated check and they will hold it until the date you have written, this creates a debt and is a form of credit.

Check Cashing Television commercials aired by Check Cashing companies offer consumers the opportunity to cash a check today and not have it deposited for two weeks. The ads don't bother to mention the typical 15% fee the company charges for this service, which works out to an interest rate of 400% or more.

Advertising Clouds the Options Consumers who are presented with advertising from check-cashing services may overlook the possibility of using more traditional, less expensive options, such as a signature loan from a credit union or a credit card. A substantial number of credit unions have minimum loan amounts of $300 to $500 on signature loans. Furthermore, the interest paid to a credit union on a signature loan for a full year is likely to be less than what a check casher charges for a single two-week cash advance.

Check Cashing Dependence Customers are very poorly served by businesses that make such loans. The high fees make it less likely that a customer will get his financial situation under control and increase the probability that the customer will be back every pay period, drastically impacting the customer's discretionary income.