Payday Loan .The $46 billion market !What Young Adults Should Know About the Dangers of Payday Loans

What is a 'Payday Loan'

 

A payday loan is a type of short-term borrowing where an individual borrows a small amount at a very high rate of interest. The borrower typically writes a post-dated personal check in the amount they wish to borrow plus a fee in exchange for cash. The lender holds onto the check and cashes it on the agreed upon date, usually the borrower's next payday. These loans are also called cash advance loans or check advance loans.

 

BREAKING DOWN 'Payday Loan'

Although the federal Truth in Lending Act requires payday lenders to disclose their finance charges, these establishments have gotten a bad reputation for their predatory lending practices. Most borrowers using payday loans have bad credit and low incomes. They may not have access to credit cards and are forced to use the service of a payday loan company. Even if the borrower feels the fee may be fair ($17.50 per $100 for seven days), that translates into a rate of more than 900% on an annualized basis. Most loans are for 30 days or less and can be rolled over for additional finance charges. Loan amounts are usually from $100 to $1,500.

 

 

 

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A cash advance is a short-term loan from a bank or alternative lender. The term also refers to a service provided by many credit card issuers allowing cardholders to withdraw a certain amount of cash, either through an ATM or directly from a bank or other financial agency. Cash advances generally feature high interest rates or fees, but they are attractive to many borrowers as they also feature fast approval and quick funding.

 

BREAKING DOWN 'Cash Advance'

Credit card cash advances typically carry a high interest rate, even higher than the credit card itself, and the interest begins to accrue immediately. In most cases, credit card cash advances do not quality for low interest rate introductory offers. on the plus side, credit card cash advances are quick and easy to obtain.

Merchant Cash Advances

Merchant cash advances refer to cash advances received by companies or merchants from banks or alternative lenders. Typically, businesses with less-than-perfect credit use cash advances to finance their activities, and in some cases, these advances are paid for with future credit card receipts or with a portion of the funds the merchant receives from sales in his online account. Rather than using a business' credit scores, alternative lenders often survey the creditworthiness of the borrower by looking at multiple data points including how much money the merchant receives through online accounts such as PayPal.

 

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PAYDAY LOANS BAD CREDIT NO CHECKS!

Our life is unpredictable and it can change suddenly due to an incident that comes without warning. As a result, we may need extra cash to meet sudden demands. These unexpected events cause a lot of stress and pressure, as they should be handled very quickly. Quite often, we can solve our financial problems normally with the money saved in our checking or savings bank accounts. But in some cases it is impossible to find the money on time. Here the fast payday loans come into play!

 

Fast cash in seconds

Usually these easy loans are offered for emergency needs, so it is very easy to acquire these finances because you may be approved in fifteen minutes. Yes, it is true. With payday loans same day payout, you may get your funds within a few hours. After submitting your online application, you will get the funds direct to your bank account and solve the emergency problem.

 

Easy borrowing

The application process involves providing confidential information (such as your name, address, employment history, contact number, etc.). Besides being 18 years old you must have a decent monthly salary so that your direct lender can count on you for the timely disbursement of funds. Of course, to receive funds from the loan company, you must have a checking or saving bank account that is used to accept funds. Later the same account will be used to withdraw the loan amount. Thus, a verified bank account is a necessity if you want to get the payday loans without vising the direct lender personally.

 

Applying for payday loans you can get $100, $300, $500 or even $1,000 dollars. But, if we look at traditional loans, they are too complex to deal with. For example, it requires a lot of time to complete applications for these loans. You must wait for weeks to get approved and provide more than just basic information. Thus, payday loans low fees are more beneficial in every way.

 

Direct loans lenders that help!

The interest rate is something that can be compared as you try to find a better direct loan lender. Many online lenders offer lower than average rates of facing a competitive market. The good thing about finding a reliable direct lender is that once you found one, getting quick cash for a financial emergency will be even easier and faster. So take the time to find the best payday lender. Actually, it may be useful to make a list when you have free time and before you are in the middle of financial crisis. Just to be safe! Take the time to find several loan companies. There are plenty of offers like guaranteed approval payday loans or no credit check loans! You should be very careful selecting them. The truth is that no-one can guarantee your approval and credit check will be performed by the lender even if the emergency occurs.

 

If you can not repay your loan on time, you should be prepared to pay extra interest. There may be some type of service fees for extending or rolling over a loan, but it always depends on the lender and you need to discuss this aspect in advance. Your interest charge definitely should not change. From term to term, your short term loan should continue to be treated the same, unless you are told in advance. Extra fees are an easy way to an unethical lender to prey on a borrower's inability to repay the loan as scheduled.

 

Do not overpay for payday loans

The best payday loans offered to anyone needing quick cash would come from a lender that does not charge excessive fees. With a little time spent digging into the payday lending market, you will be able to find one that takes the extra cost down. These lenders understand that customers are going through a difficult time and they act accordingly. Do your homework to avoid spending money you do not have to spare and avoid those who try to take advantage of your situation.

 

The most common fee for payday loans is interest or service charges. Because these loans have an average of two weeks in duration, there is no time intended to earn interest. And lenders will charge a fee for the loan to earn profit. The use of third-party funding is not free so do not be alarmed to see the extra cost, it is normal. A good lender would not charge other fees if the money is paid on the agreed due date. There are companies that try to hide application fees in the processing your request. They may charge an average of $ 20-30 from the bank account of each candidate with or without approval status. It can be avoided by looking for a “free application” message on their website or calling and asking questions about fees for applications. Sending a loan application must be free and response must be guaranteed, so if it is not, you should choose another loan provider without hesitation.

 

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Payday Loans Don't Pay

By Jonas Elmerraji

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If you're lucky, you might not be familiar with the term "payday loan". A payday loan is supplied by a third-party lender and it is supposed to help consumers get out of last-minute financial jams by offering a cash advance on an upcoming paycheck. While getting out of a tough spot is certainly a good thing, the interest charged by payday lenders typically surpasses 100%, which could make a tough spot even tougher. So, are payday loans a great service for those in need, or are they an example of loan shark companies preying on people's desperation? We will get to the bottom of it in the following article. (Keep your credit score healthy and your debt under control, check out Six Major Credit Card Mistakes.)

 

Why wait for payday?

A payday loan works like this: You're short on cash and can't wait until your next paycheck comes around, so you head off to your local payday lender (some of whom are even online these days), and ask to set up a payday loan - usually somewhere between $50 and $1,000, although the higher limits are usually harder to qualify for. You write a post-dated check for that amount plus the fees you now owe to the lender. You get your money right then and there and, when payday rolls around, the lender will cash your check and collect its profit.

 

Typically, people who use payday loans find themselves in situations where they are presented with few other financial alternatives. In their eyes, a payday loan is a way of staying afloat for a short period of time without having to ask for handouts. People with low credit or no credit are ideal customers for payday lenders. (To learn more, see The Importance Of Your Credit Rating.)

 

 

One Step Forward, Two Steps Back

In most cases, a payday loan is not an attractive option for short-term financial problems. Exorbitant interest charges, sub-par lender reliability, small loan size, future dependency and the possible negative effects that borrowing from these lenders can have on your credit rating are all valid reasons to avoid a payday loan if at all possible. (For related reading, see Are You Living Too Close To The Edge?)

 

The amount of interest charged by payday lenders is no joke. Annualized interest of between 200% and 500% are the industry standard. For example, the following chart shows annual interest charges from an $18 fee (essentially the interest) charged on a borrowed sum of $100 from various loan lengths. Payday lenders are often able to get around usury laws - government limits on the amount of interest a lender can charge - by calling their interest charges "service fees", which aren't subject to the same regulations as interest fees are in many places. (To learn more about loan interest and how to calculate it, read APR Vs. APY: How The Distinction Affects You.)

 

Day of Loan Finance Charge per $100 APR*

8 $18 821%

9 $18 730%

10 $18 657%

11 $18 697%

12 $18 548%

13 $18 505%

14 $18 469%

15 $18 438%

16 $18 411%

17 $18 386%

18 $18 365%

*Per Truth in Lending Act

 

Above the Law

Many states have usury exemptions for loans made by foreign entities, or lenders incorporated outside the borrower's state. When a state won't accept the "service charge" loophole, lenders will often take advantage of this by setting up shop in places with no restrictions on the amount of interest they can charge. A lender in South Dakota, where there is no usury limit, can make a loan to someone in California, where usury restrictions do exist, by taking advantage of this trick. The excessive interest charged by payday lenders is illegal in many places, including Canada, where usury is technically limited to 60%, although the Canadian government has yet to step in to enforce the law. Of late, many states have been taking steps to bar payday lenders from operating within their borders.

 

 

In general, payday lenders tend to be less reputable than their commercial bank counterparts. In an industry where documentation is paramount, payday lenders can require borrowers to provide personal financial and identification information as part of their approval process. Because payday loans provide big profits for lenders without many requirements for professional credentials, a lack of information security and potential for fraud are also troubling aspects of payday loans. (Find out how to protect yourself and your loved ones from financial fraudsters, read Stop Scams In Their Tracks.)

 

Paltry Sums

With all the detractors from the payday loan, the size of most payday loans seems of little consequence. But when you consider the fact that most payday lenders won't typically authorize anything more than $400, their usefulness - particularly if someone is concerned about keeping up car or mortgage payments - really comes into question. The small loans act in the lenders' favors in more ways than one: Smaller loans means more borrower diversification because spreading money over more customers means less risk. Also, limiting loans to small amounts can often disguise just how extreme the interest rates are.

 

Learning to Live Without

Another major risk that goes along with payday loans is the risk of dependency. While a payday loan might get you through the end of the month, will the interest charged on the loan make things even more difficult for you the following month? A cycle of dependency like this can cripple a person's financial health. If this is the case, taking out a payday loan can have a lasting impact on your ability to get credit in the future. As payday loans become more commonplace and are being handled by more established companies, some payday lenders are starting to report to credit bureaus. Given the precarious nature of most payday borrowers' finances, defaulting on your payday loan could mean a lasting scar on an already weak credit score. (Recognize when it's time to cut back on spending, read Five Signs That You're Living Beyond Your Means.)

 

Better Alternatives

Payday loans are not the only solution to short-term liquidity problems. If you need money and you find that collateral and credit aren't major problems, a conventional loan is the best-case scenario. If taking out a personal loan isn't a realistic possibility, asking your employer for a pay advance or going to online lending communities like Prosper.com can be a way of avoiding a payday loan. Despite the old adage that warns against borrowing from friends and family, you might want to consider it over resorting to taking out a payday loan - especially considering the payback options put you in a deeper hole. (For related reading, check out Getting A Loan Without Your Parents.)

 

Conclusion

Resorting to a payday loan is often a worst-case scenario, and you may find that a payday loan is your only option. If this is the case, it's important to weigh your options and reflect on all your facts before you enter into a financial agreement that's probably stacked in the house's favor. You can also work toward building yourself an emergency fund, so that you'll have money available if disaster strikes. In a sticky situation, it could be the best solution of all. (To read about saving for disaster, see Build Yourself An Emergency Fund.)

 

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What Young Adults Should Know About the Dangers of Payday Loans

 

By Elise Brown 5 years ago

 

When you are just starting your adult life, it is very important that you make the right financial decisions. Too many people go out into the real world without the proper financial education, and without this education, they end up making decisions that affect the rest of their lives.

 

Overspending on everyday shopping trips, overusing credit cards, and taking out payday loans are just a few of the many common mistakes these young adults make, and they are also mistakes you should avoid. For now, I would like to inform you about the dangers of payday loans specifically and some of the alternative choices you have when you think you need a payday loan.

 

What is a Payday Loan?

 

Payday loans, also called cash advances or paycheck advances, are short-term loans (usually about two weeks) that you must repay by the time you get your next paycheck. The lender will charge you a fee plus interest on the amount you borrow, and loan you the money you need. These types of lenders usually don’t require a full credit check, which is why they are so popular with those who have bad credit and a low income. This means that the lender is taking a very large risk when they lend money, which is why payday loans have such high interest rates.

 

Disadvantages of Payday Loans

 

Some states have a limit as to how high the annual percentage rate (APR) on these loans can get, and some states don’t allow these types of loans at all. However, some states don’t restrict payday lenders, and the APR could be anywhere from 300% to 900% in some cases. Even credit cards have a better APR than this. While this may be a very easy way to get cash fast, you should be very careful because some people who take out a payday loan could end up paying more in interest than they originally had to borrow in the first place.

 

When a person takes out a payday loan, they write a check for the amount borrowed plus a fee that will be cashed by the lender on their next payday. If they aren’t able to repay the loan at that time, they can roll over the loan to repay it on the following payday. This is where so many people get into trouble. They continue to roll over the loan because they are unable to get by on what is left over from their paycheck, so the loan amount continues to grow with interest. This vicious cycle continues until the person is forced to take out another payday loan to pay off the first payday loan. This process leads to more debt than the persona can handle, and some are forced to go bankrupt because of their decision to take out a payday loan.

 

Payday loans don’t help solve the underlying problem that has lead borrowers to their financial state. It simply puts a Band-Aid on the gaping wound that is their financial situation. Instead of making this horrible decision that could affect you for the rest of your life, you should change your financial habits and make better choices for your financial future.

 

Alternatives to Payday Loans

 

There are many lower interest alternatives to payday loans. The following are just a few.

 

Credit union loans –Your local credit union may offer small, short-term loans to members. Small bank loans – Some small banks offer alternatives to those looking into payday loans. Advances from employers – Ask your employer for a paycheck advance instead of going to a payday lender who will charge interest. Borrowing from family and friends – Don’t let your pride keep you from making the right financial choices, but also make sure you put down in writing exactly what each of you expect from this loan. You don’t want money to ruin a friendship or a family relationship. Build up and emergency fund – Every household should have at least six months’ worth of expenses saved up in an emergency fund for those tough financial times. If you don’t have any savings now, find a way to save this money so you can avoid having to take out a payday loan in the future. Use your credit cards only for emergencies – If you always have the option to use your credit card, you won’t have to worry about taking out a payday loan. only use your card for emergencies or when you know you will be able to pay off the balance immediately. Not only will you avoid payday loans, but you will also be able to maintain a good credit score, which will help you in the future.

 

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The $46 billion payday lending industry is in for a big blow

 

Mandi Woodruff February 10, 2015

 

 

 

The $46 billion payday lending industry is about to suffer a big blow. The Consumer Financial Protection Bureau's release of new payday lending regulations is imminent. The new rules could crack down on high-fee short-term installment loans, like the kind doled out by car-title and payday lenders, according to the New York Times.

 

 

“What their rulemaking will do is say wherever a loan exists, it has to be fair and transparent,” says Nick Bourke, director of the Pew Charitable Trust's small-dollar loans project. “The CFPB has an historic opportunity here. I’m hopeful that they’ll take advantage of it fully.”

 

This could be a huge win for consumers, but some of you may be left wondering this — why has it taken so long to get these lenders under control? Some payday lenders charge triple-digit interest rates on loans as small as $400. And when borrowers can’t pay back their loans, they’ve been known to harass them at their job and threaten to have them arrested.

 

Here are a few reasons payday lenders are so hard to regulate:

 

1. They have mastered the Internet.

 

You don’t see as many bricks-and-mortar payday lenders these days, but that doesn’t mean business isn’t booming. Revenue for online payday lenders has more than doubled since 2006, from $1.5 billion to $4 billion. Going online is an easy way for out-of-state lenders to get around tough lending regulations in states like New York. Just a year ago, officials in New York fined a South Dakota-based payday lender for luring customers to their website through late-night TV ads that ran in New York.

 

[Get the Latest Market Data and News with the Yahoo Finance App]

 

2. Not all states are cracking down on them.

 

Only 15 states actually cap the interest rates payday lenders charge customers. That means in most states, lenders can still charge rates as high as 300% to 400% with near impunity. Unfortunately, even with the CFPB's new regulations, states would still be free to set interest rate limits on payday loans as they please. Still, Bourke is hopeful that the new regulations will have a positive impact, especially if the CFPB can prevent payday lenders from marketing their products deceptively — that is, claiming that payday loans can be borrowed and repaid within a two-week time frame, when in fact 80% of payday borrowers wind up rolling their loans over. The CFPB would achieve this by requiring payday lenders to replace the typical two-week term limit with a six-month term loan, a change that states like Colorado have already implemented.

 

3. Payday lobbyists have deep pockets.

 

With a $46 billion industry at stake, you can bet payday lenders won’t go down without a fight. Each year payday lending lobbyists spend millions of dollars making sure Congress doesn't pass laws that would hurt their bottom line. Since 1998, the industry has increased their spending 19-fold, from $230,000 a year to $4.5 million.

 

And sadly, they’re good at their jobs. According to the Times, several lawmakers in Washington state are trying to pass a bill that would double the number of payday loans a borrower can take out in a year, which is now capped at eight.

 

How to protect yourself

 

In his attack on the payday loan industry last August, HBO’s John Oliver had solid advice for consumers: “If you’re thinking about getting a payday loan, pick up the phone, then put it down and do literally anything else.”

 

“Anything else” could be applying for a small loan from a credit union, or even using a low-interest credit card. Ask friends or family for a small loan.

 

According to Pew, nearly 70% of payday loan borrowers turn to these loans to pay for a recurring expense like a utility bill, mortgage or credit card payment. You will be much better off calling your landlord, cable company or credit card issuer upfront and telling them about your situation, than getting a payday loan. They may be willing to work with you on a payment plan you can afford.

 

If you’re being harassed by a payday lender, contact your state attorney general’s office or the CFPB to file a complaint. And here’s a rundown from the FTC of exactly what methods payday lenders are and are not legally allowed to use to collect loans.

 

Check out more from Mandi Woodruff:

 

3 ways to stop feeling broke all the time

 

5 benefits you can ask for if you don't get a raise

Student loan refinancing can be a great idea — except when it's not

 

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Payday loans in the United States

 

A shop window in Falls Church, Virginia advertises payday loans.

Main article: Payday loan

A payday loan (also called a payday advance, salary loan, payroll loan, small dollar loan, short term, or cash advance loan) is a small, short-term unsecured loan, "regardless of whether repayment of loans is linked to a borrower's payday."[1][2][3] The loans are also sometimes referred to as "cash advances," though that term can also refer to cash provided against a prearranged line of credit such as a credit card. Payday advance loans rely on the consumer having previous payroll and employment records. Legislation regarding payday loans varies widely between different countries and, within the United States, between different states.[4]

 

To prevent usury (unreasonable and excessive rates of interest), some jurisdictions limit the annual percentage rate (APR) that any lender, including payday lenders, can charge. Some jurisdictions outlaw payday lending entirely, and some have very few restrictions on payday lenders. In the United States, the rates of these loans were formerly restricted in most states by the Uniform Small Loan Laws (USLL),[5][6] with 36%-40% APR generally the norm.