Why Should You Avoid a Check Cashing Service?

If you have a checking account with us or another financial institution, you may wonder why anyone would go to a special service just to cash a check. There are two primary reasons: 1) they don’t have a regular checking account, or 2) They need a cash advance or short-term loan. Why should you avoid these places? Because they do exactly what a regular financial institution does but charge a whole lot more money.

Check cashing services would have customers believe they are actually cheaper than a typical financial institution, but it’s simply not true. Typically, they charge anywhere from 3 percent to 5 percent of the check just to cash it. So, cashing a $1,000 pay check would cost $30 to $50. Multiply that by 26 pay checks a year, and you’re paying between $780 and $1,300 to access your own money. That could be an extra mortgage payment every year, or vacation money, or just money to save for emergencies so you don’t have to use a credit card. If you have a free checking account with direct deposit, it costs you nothing to access your money, and you don’t have to go anywhere to do it.

Short-term loans are where check cashing services really make their money, though. Also known as pay day loans, these places typically charge $20 for every $100 borrowed. In theory, that loan should be paid off with the next pay check, but it doesn’t always happen that way, and debt mounts quickly. If it took a year to pay off that loan, you could end up paying 400% APR interest or more. That’s 20 times more interest than a high-interest credit card. If you can’t pay off the card, how will you ever pay off a 400 percent loan?

Some Alternatives to Consider:
Use overdraft protection as a short-term loan. Rates on our line of credit loans are low and we can deduct payments automatically on pay day so you pay off the loan faster.

Neighborhood also offers other simple interest loans when you need money for emergencies.  Quick Cash is our payday loan alternative.

Spend less and save more. We know it’s easier said than done, but you can do it if you make a budget and stick to it. Think about it. If you took that check cashing fee and had it automatically deposited from your pay check to a prize savings account every pay day, you would save up to $1,300 in a year.

BALANCE
If you’re really struggling to makes ends meet or your debt is out of control, take advantage of our free BALANCE program. BALANCE provides free financial counseling and education to help you manage your money, debt and credit score.

Always come to your credit union first for financial help. It will save you a lot of money and headaches down the road.