Payday loans can seem like a lifesaver if you need cash quickly, but high fees and short repayment terms can lead to a debt cycle. A payday loan is a type of short-term loan in which a lender will provide high-interest credit based on your income. Your equity is usually a part of your next paycheck. Payday loans charge high interest rates for immediate short credit, and are also known as cash advance loans or advance check loans.
If you can't repay the loans, and the Consumer Financial Protection Bureau says that 80% of payday loans are not returned within two weeks, then the interest rate soars and the amount you owe increases, making it almost impossible to repay them. You may think that a payday loan is the only solution to handling an emergency bill, or even to pay off another debt, but the truth is that a payday loan will end up costing you more than the problem you are trying to solve. It will add more than any late payment or bounced check fees you are trying to avoid. Compare payday loan interest rates of 391%-600% to the average rate for alternative options such as credit cards (15%-30%); debt management programs (8%-10%); personal loans (14%-35%) and online loans (10%-35%). Should payday loans be considered an option? So before you grab that fast and very expensive money, understand what payday loans entail. Payday loans are a quick fix for consumers in a financial crisis, but they are also budget-breaking expenses for families and individuals. Consumers fill out a registration form at a payday loan office or online.
Identification, a recent payment receipt and bank account number are the only documents required. Full payment is due on the borrower's next payday, which is typically two weeks. Borrowers either after the date of a personal check to match their next paycheck or allow the lender to automatically withdraw money from their account. If a consumer is unable to repay the loan within two weeks, they can ask the lender to “renew the loan”. If the borrower's status allows, the borrower only pays the charges due and the loan is extended.
However, interest grows, as do financial charges. The amount of interest paid is calculated by multiplying the amount borrowed by the interest charge. Once again, the APR is astronomically higher than any other loan offered. If you used a credit card instead, even with the highest credit card rate available, you are paying less than a tenth of the amount of interest you would pay on a payday loan. Surveys suggest 12 million US consumers get payday loans each year, despite ample evidence that they make most borrowers go into debt. There are other ways to find debt relief without resorting to payday loans.
Community agencies, churches and private charities are the easiest places to try. Payday lenders take advantage of people in desperate economic straits—that is, low-income minority families, members of the military, and anyone else with limited credit options. The CFPB estimates that 80% of payday loans are refinanced and 20% end up in default, which is included in your credit report for seven years and almost eliminates you from borrowing in the near future. Default also exposes you to harassment from debt collection agencies, which either buy the loan from the payday lender or are hired to collect it. Either way, you can wait for the phone to ring until you pay. There are also long-term damage to your credit rating.
Although some payday lenders do not report directly to the three major credit bureaus in the United States, most report to smaller bureaus. If the debt goes to a collection agency, that agency almost always reports the non-payment to major credit bureaus, ruining your credit. Every year, an estimated 12 million Americans apply for payday loans. What some don't realize is that payday loans are one of the most expensive ways to borrow money. It's not uncommon for the annual percentage rate (APR) of a payday loan to exceed 300%, which is astronomical compared to a typical credit card APR of about 16%.
At some point, the payday lender might send your debt to collections. In the end, you may owe the amount you borrowed, plus the fee, overdraft fees, returned check fee, potential collection fees, and potential court costs if sued by the payday lender or collection agency. Getting out of debt on a payday loan is difficult, as this type of financing comes with high interest rates and short repayment terms. Most payday loan borrowers end up transferring existing payday loans to new payday loans, incurring more commissions and getting stuck in a debt cycle. Any payday lender that forces you to pay an additional fee to “renew” your payday loan and have the entire loan repaid later is in violation of state law. A payday consolidation loan could help you escape this debt trap and keep you from paying sky-high interest on payday loans. While a payday loan usually doesn't appear on your credit report, a payday consolidation loan usually does.
If the payday lender charges a higher rate than what Washington law allows, the payday loan cannot be enforced. By writing a check to your account or authorizing the payday lender to withdraw money directly from the account, you give the payday lender permission to withdraw money from your account, regardless of the type of funds in the account. Because of this, payday loans often attract people with low credit scores who might think they can't qualify for a payday consolidation loan. Payday loans are loans that help you move from one payday to another (for those times when your paycheck cannot be extended until month's end). Payday lenders rely on regular customers—often low-income minorities—who charge exorbitant compound interest on cash advances.
When payday loan borrowers are unable to repay their loan they can open up another payday loan, incurring more commissions and getting stuck in an endless cycle of debt. Any payday lender that forces you to pay an additional fee in order for them “renew” your payday loan, thus having it repaid later on down line is in violation of state law. A payday consolidation loan, however could help you escape this debt trap and keep you from paying sky-high interest on payday loans. While payday loans, usually don't appear on your credit report; payday consolidation loans, however usually do. If payday lenders, charge higher rates than what Washington law allows; then such payday loans, cannot be enforced by law. By writing checks or authorizing lenders withdraw money directly from accounts; borrowers give lenders permission withdraw money regardless type funds in accounts; thus attracting people with low credit scores who think they can't qualify for payday consolidation loans.
Payday lenders take advantage people desperate economic straits—low-income minorities; members military; anyone else with limited credit options—charging exorbitant compound interest cash advances when borrowers unable repay their loans. In end; borrowers may owe amount borrowed; plus fee; overdraft fees; returned check fee; potential collection fees; potential court costs if sued by lenders or collection agencies.
