PayDay Loans

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    PayDay Loans

    Have you ever thought, I just need a little cash to get me through until my next payday? Have you been tempted by those payday loan ads claiming to offer help?  I would highly recommend you do not do it and I’m going to tell you why.

    There are different names by which you may have heard of them – payday loan, cash advance, title loan. But they are all the same. Payday loans are short term loans which claim to be able to help you through a tight spot.

    Unfortunately, there are very few instances where they actually do. Before you use one of these, make sure you understand the cost and risk.

    You can get some great advice and information about payday loans at helppaydayloandebt.com.

    Check out the cost comparison:

    To Borrow $300 and Repay in One Month:

    Type of Credit Terms Finance Charge Apr Total Paid
    Credit Card Cash Advance (avg) 20.23% APR No Grace Period 3% Fee $7 Min fee $13.99 56.74% $313.99
    Credit Card Cash Advance (high cost) 27.5% APR No grace period 4% fee $18.78 76.16% $318.78
    Small Loan 36% APR Cap $9.00 36% $309.00
    Payday Loan $17.50/$100 15-day term w/1 rollover $105.00 426.00% $405.00

     

    To Borrow $500 and Repay in Four Monthly installments:

    Type of Credit Terms Finance Charge Apr Total Paid
    Credit Card Cash Advance (avg) 20.23% APR No Grace Period 3% Fee $7 Min fee 3% min mo pmt $48.86 29.10% $548.86
    Credit Card Cash Advance (high cost) 27.5% APR No grace period 4% fee $18.78 76.16% $318.78
    Small Loan 36% APR Cap $38.04 36% $538.04
    Payday Loan $17.50/$100 15-day term w/7 rollovers $700.00 426.00% $1,200.00

    Payday loans are extremely expensive. For example, you might pay a $20 fee on a $100 loan to be paid back within two weeks. With their extremely high fees, they really do nothing to help solve your real problem. Payday loans can only make your financial difficulties worse. Those really high interest rates only make your expenses go up.

    Requirements to Get a Payday Loan

    All a consumer needs to get a payday loan is an open bank account in relatively good standing, a steady source of income, and identification. Lenders do not conduct a full credit check or ask questions to determine if a borrower can afford to repay the loan.

    Payday Loan Industry

    Payday loans are made by payday loan stores, check cashers, and pawn shops. Some rent-to-own companies also make payday loans. Loans are also marketed via toll-free telephone numbers and over the Internet.

    At the end of 2010, an industry analyst estimated that there were 19,700 payday loan stores operating, down from an estimated 20,600 stores at the end of 2009. The number of payday loan stores has been dropping since 2006. This same analyst estimates 2010 loan volume at $29.2 billion with $4.7 billion in revenue for loans made by payday loan stores.

    In addition, Internet payday lenders are estimated to have loaned $10.8 billion and collected fees of $2.7 billion in 2010. Combined storefront and Internet payday lending totals $40.3 billion in loans and $7.4 billion in revenue.

    Legal Status for Payday Lending

    High cost payday lending is authorized by state laws or regulations in thirty-two states. Eighteen states and the District of Columbia protect their borrowers with reasonable small loan rate caps. The Arkansas Supreme Court ruled that the Arkansas payday loan law was unconstitutional. In recent years, Oregon, Ohio, New Hampshire, Arizona, Montana and the District of Columbia have reimposed rate caps.  For more information, click on Legal Status of Payday Loans by State.

    Protections for Service Members and Dependents

    Federal protections for service members and their families took effect October 1, 2007. The Department of Defense regulations apply to payday loans, car title loans and tax refund loans. Lenders are prohibited from charging more than 36 percent annual interest including fees; taking a check, debit authorization or car title to secure loans; and using mandatory arbitration clauses in contracts for covered loans.

    Debt Traps

    Payday loans trap consumers in repeat borrowing cycles due to the extremely high cost of borrowing, the very short repayment term, and the consequences of failing to make good on the check used to secure the loan. Consumers who use payday loans have an average of eight to thirteen loans per year at a single lender. In one state almost sixty percent of all loans made were used to cover the prior payday loan transaction; either through renewals or new loans taken out immediately after paying off the prior loan.

    Internet Payday Lending

    Internet payday lending adds security and fraud risks to payday loans. Consumers apply online or through faxed application forms. Loans are direct deposited into the borrower’s bank account and electronically withdrawn on the next payday. Many Internet payday loans are structured to automatically renew every payday, with the finance charge electronically withdrawn from the borrower’s bank account.

    Consider some alternatives:

    Need help making a budget? We would all prefer not to have to borrow money. It is always better to have the money on hand, maybe in savings. That is always my goal.

    I don’t like credit cards but understand that mine is a minority opinion. I agree with the biblical statement – “The borrower is servant to the lender.” If you do have a credit card, there are some great tips about wise usage. One being, never charge consumables – such as gas and food.

    Help yourself before you get to that desperate point.

    Have a payday loan horror story you want to share? Leave it in the comment section below.

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