My Money - Owing It
(published by the National Endowment for Financial Education) Click here for the online copy.
Check-cashing stores, money orders, payday loans, and pawnshops are quick, easy
ways to get money, especially when you don't have a bank account or your credit isn't
very good. That's the good news.
The bad news: You'll pay a price for the convenience. These services often charge a lot
of money in fees and interest rates. That makes them much more expensive than using
Use these so-called "storefront financial services" very cautiously (or avoid them
altogether). Read on to learn more.
• Check-cashing stores. Check-cashing stores may be easy to find and often have
longer hours than banks, but they are expensive. These stores typically charge
fees that range from 2.5 percent to 8 percent for every $100 cashed. Here's an
example: Let's say Tom cashes his $300 paycheck each week at the local check-
cashing store. The store charges him 4 percent or $4 for every $100?$12 in all.
In a year, Tom will spend $624 in check-cashing fees ($12 x 52). That's $624
that Tom won't have to put into a savings account, take a trip, or sign up for a
class at his community college.
If you have a bank account, you can go to the bank and get your paycheck cashed for
free. Or, try to cash your check at a grocery store, which often will cash it for free if
you have an identification card, such as a driver's license.
• Money orders. Money orders are sold at check-cashing stores, post offices,
grocery stores, convenience stores, and elsewhere. They can be used like a
check to pay bills.
If you use money orders, shop for the lowest price. For example, a grocery store
usually charges less than a check-cashing store.
Also, compare the cost of buying money orders with a basic checking account at a
bank. The checking account may cost less. In addition, it's safer than carrying cash with
you to a store to buy money orders.
• Payday lenders. Payday loan stores make shor