• Lower your monthly payments
  • Reduce stress and live your life
  • Avoid personal bankruptcy court

Know about Payday Loans

Payday loans are a perpetual trap that many American families rely on to make ends meet every payday. Many families’ incomes fall short within that time frame, and they have a hard time providing just the necessities.

To make up for this shortfall, may families take out a “quick” payday loan, in which they borrow a small amount of money that must be paid back by their next payday. However, these loans are laden with finance charges and costs that cause the borrowers to sink deeper and deeper into debt. Consumers are rarely able to pay back the loan within the two weeks. Actually, many consumers believe that they will be able to repay the loan within the two-week time frame with no problem.

Initially, it sounds like a good idea. The consumer borrows money to tide them over. In two weeks, they make the minimum payment, say $50. They feel like they are making progress on their loan because they made a payment. But in actuality, they total amount is the principal, plus the $50. Each minimum payment made is merely an extension of time to pay the debt, with fees continuing to incur every time a small payment amount is made.

Another downfall regarding one of these types of loans is that consumers rarely completely understand the terms of the loan. Many payday lenders advertise an interest rate of $15 per every $100 borrowed. This sounds like a great deal, especially considering that most credit cards charge an average of 20-plus percent in interest. In actuality, that’s a very high rate. Consider a loan of $375 with a fee of $55. If you were to roll over that loan for an entire year, you would pay over $1,400 in fees. That’s almost four times the original loan amount.

One reason consumers choose payday loans over other lending options is the lack of knowledge that other viable options exist. For example, many consumers do not realize that many banks offer similar products as payday loans, but at a much better rate. Some banks offer a product called a deposit advance loan, which charges between $7.50 to $10 per $100 borrowed, compared to the $15 per $100 borrowed that most payday loan companies advertise.

The government is attempting to impose stricter requirements on payday loan businesses practices, particularly when it comes to substantiating the debtor’s salary prior to authorizing an extension of credit. Some states restrict payday loans by putting a max on the number of times a borrower may borrow per year. And, some states have placed limits on the maximum annual percentage that can be charged. Unfortunately, some states are not doing as well when it comes to placing limits on these payday loan companies.

There are currently state laws administering checks and balances against these payday loan companies, but the federal government wishes to become a watchdog for the American people as well. The federal government believes that it is common sense for a lender to verify a potential borrower’s income before approving a loan. The federal government believes that these loans are bad news and need to be closely watched and monitored.

These new regulations would apply to those companies presenting themselves as payday loan companies, as well as car title loans. These companies force the debtor to sign over their title to their vehicle as collateral in the event the debtor fails to repay the loan. Moreover, the borrower must pay the entire loan back in only 45 days. That is not much time to repay something in which such a high-valued asset is at stake. As with payday lenders, car title lenders would be required to certify the person’s income and ability to repay the loan.

Additionally, a mandatory waiting period would be enforced after the last loan. This would prevent the borrower from taking out another payday or similar loan within sixty days from their previous loan. And, reasonable payment choices would be mandatory, loans must be less than $500, and these companies would be disallowed from requiring a vehicle as a surety, or charge sequential fees.

Payday loan companies disagree; pointing out that too many people would lose access to any loans if these stricter rules and regulations were put in place.

So what are some other viable options for consumers who may need a short-term boost to their income? Some suggestions are obtaining a second job for a short period of time, performing miscellaneous side jobs, or if push comes to shove, borrow money from a friend or relative until your finances can smooth back out. Payday loans and car title loans are extremely risky and high-cost, so use these financing methods as an absolute last resort. The government is doing what it can to watch out for the consumer, but we must also be our own advocates. So, do your research on these loans and possible other financing options, and borrow responsibly.

Do You Know the Truth about Payday Loans?

Have you ever been in that situation where you really need money? Many of us would answer yes to this, as the need for money can sometimes arrive unexpectedly. The reason behind this may be a check that bounced, an emergency car repair, or a bill that has to be paid no matter what. The list is just endless, but before you consider a payday loan, it is important you ask yourself whether you know the truth about payday loans.

Truth about Payday Loans

What It Is

A payday loan is given out for a short period for a small amount of money, which is usually less than $1,000. The idea behind one of these loans is also referred to as a check loan or a cash advance. The loan gives the person some money to tide you over whilst you are waiting for the next payday. It is important you know the truth about payday loans before you consider one. A payday loan will usually need access to your checking account. This is to:

  • Deposit the loan
  • Access the repayments funds

With a payday loan, you can easily get funds in the case of an emergency, but the truth about payday loans is that they are not a good financial decision to make.

Consider the Cost

When it comes to the truth about payday loans, the first point you are usually unaware of are the costs. The yearly percentage rate for these loans can go to as high as 2100 percent. When it comes to borrowing, it is vital you borrow from the source with the lower yearly percentage rate as possible. Another truth about payday loans involves the amount of interest you are paying. This is not always clear due to the fact the percentage rate is calculated annually.

How It Works

  • You firstly pay a fee for borrowing money.
  • For every $100 loan, the fee is between $15 and $30.
  • When the payday comes around and you have the money, you then pay this.
  • However, if you cannot afford to pay this, you can roll over it for another fee.
  • This way the consumer faces an increase in expenses.
  • A big truth about payday loans has to be their enterprise, which is to make lots of money.

The worst truth about payday loans is regarding the individual’s bank account number. When the consumer gives this to the lender, the lender can make automatic withdrawal.

Legal Dangers

A further truth about payday loans involves the loopholes. These are many, providing only little protection to the consumer, with a number of states setting limits for loan rollovers. However, they do not limit opening a new loan the same day the previous loan is paid off. Other states have a 24-hour waiting period for the new loans, with others having no restriction whatsoever.

Alternatives to Payday Loans

The truth about payday loans usually raises more awareness and results in individuals looking for alternatives. Well, we have you covered! Even though you can get instant cash with a payday loan, you really do not want to take the risk. The advertisement of payday loans shows how it can build your credit, but in reality, it is a route that is both risky and expensive to take. Prior to taking out this loan, it is important one is able to afford expenses with their current paycheck. If you are finding it difficult to do this, you may want to consider one of the alternatives below:

  • Credit card interest rates – these tend to be lower than what you would have to pay with a payday loan. If you have access to credit card cash advances or credit, you should choose these resources instead of a payday loan. You may be able to increase your limits on the current card or open a new credit card.
  • Obtain a small loan from a credit union or a bank – short term and small loans are very common as credit unions and banks offer substitutes to payday loans to their clients.
  • Go for a second job or sell some belongings – you may consider babysitting even if it is for a night to tide you over!
  • Make a budget- if you find it difficult to make your money last up until the next paycheck, you should create a budget, which will help decrease your expenditures.
  • Emergency fund – if you already have an emergency fund in place, this will always prevent you from taking out loans in the need of an emergency.
  • Overdraft protection – if you currently have a payday loan, maybe it is time to get overdraft protection on your bank account.

The Bottom Line

The process of borrowing payday loans can be expensive, which is very tough to break. The payday loan industry takes advantage of individuals who have limited resources. If you are finding it very hard to make ends meet and are in debt, you may want to think about financial counseling as a way of coming free from your struggling situation.