Jun 15, 2012

Payday Loan Consolidation – A Genuine Debt Solution?

With an estimated annual business of close to 60 billion dollars, payday loans are an ever increasing and growing market in the US, and indeed worldwide. The last few years have seen huge economic uncertainty, and individuals and families have been put under enormous financial pressure. Payday loan companies have not only capitalized, but thrived as a direct result of these pressures and strains. In theory, a payday loan is an extremely convenient short term debt solution. In practice, however, those loans can quickly turn from a convenient debt solution to an overwhelming debt problem. The problem with these instant loans is that because the interest rate is so high, paying back the loan can leave the borrower stuck for funds before their next payday, and a vicious cycle of constant payday loans begins and a borrower will never be debt free again. An interest rate of 15% might sound reasonable, but 15% over two weeks is a massive 390% over the course of a year. You wouldn’t dream of taking out a car loan or a credit card at those rates, so why would you take out a payday loan at those rates?

What is a Payday Loan Consolidation Company?

When a customer falls into a loan cycle, they can often find themselves financially frozen by the prohibitively high interest rates associated with the debt. As is most common among payday loan borrowers, there are often several loans outstanding and the payday loan companies can be extremely forceful in pursuing their debt. A loan consolidation company effectively acts as a middle man between you and your creditors – those that you owe money to. They will approach your creditors on your behalf and attempt to negotiate a settlement figure and a structured payment plan so that you can pay off your debt in a timely manner. Consolidation companies generally instruct customers to stop paying their payday loans, and often to close the account that any payments are being made from. Instead of paying your loans directly, you make a payment to your loan consolidation company who in turn distribute funds in respect of your loans.

How Does a Loan Consolidation Company Make Money?

There are two ways how a payday loan consolidation company makes money. The first method involves taking the first month’s consolidated payment as the cost of using their services. For example, if you came to an agreement to repay $500 a month through the consolidation company, they would take your first payment of $500 and you would not start servicing your debt until the second month onwards. The second and more popular method involves an on-going charge which is included in your repayment plan. In this case, your $500 a month repayment might include a $75 monthly charge for the debt consolidation company.

Why do People Use Payday Loan Consolidation?

In most cases, people are driven to loan consolidation companies through sheer desperation. Payday loans feature cripplingly high interest rates and fees, and they can quickly become overwhelming. People seek the relief of a debt burden in an attempt to save money, and to reduce the number of outgoings to one single payment. Others use debt consolidation companies as they do not like dealing with their lenders and are happy to pay a fee for someone else to do their dealings on their behalf. Unfortunately, the most people use payday loan consolidation companies simply because they think it is the only solution available to them. Although this is far from true, there is a widespread misunderstanding as to the powers of payday loan companies, and what they can do to recover their supposed debt. These payday lenders tend to use intimidating and threatening language, but in many cases their threats carry no weight. Regardless, people do feel intimidated and threatened, and in turn seek the assistance of payday loan consolidation assistants.

Should I Use a Consolidation Assisting Company?

The problem with that type of companies is that you are paying out more money for someone to arrange to pay your debts, and in many cases these companies are simply interested in making money for themselves. The laws around payday loans have become increasingly strict in recent years, and there is a wealth of information available for people so that they can arrange to repay their debts on their own terms.

First and foremost, you should find out whether your payday loans were legal in the first place. If the lender is not licensed in your state, you are only obliged to repay the principal sum you borrowed. In several states, there are very strict rules on the amount of interest that these lenders can charge, and many are operating illegally. Furthermore, the lenders that are licensed will often have extended repayment options available if you contact them directly. At their heart, loan consolidation companies are businesses looking to make money, and their terms and conditions can be misleading also.

Many people could save themselves far more money by taking swift and direct action on their own. If you are in difficulty with payday loans, you should immediately close the account that these companies have access to. Then, research whether they are a licensed lender in the first place. If not, you should contact them and inform them that you have confirmed the loan they issued to you was illegal, and if you have already repaid more than the initial sum borrowed that you demand a confirmation that your debt with them is closed. For legal payday loans, you should contact the lender and agree to a more structured repayment schedule.

A payday loan consolidation company is not a legal entity, nor does it hold any greater authority than you as an individual. It can be difficult, but any agreements that they can come to with a payday loan lender can be achieved by you without their help. There is no doubt that some people have used loan consolidation companies successfully, but there are just as many who have simply ended up further out of pocket. Before you go down that road, you should ensure that you have done everything in your power to resolve the issue yourself.

Jun 15, 2012

Merchant Cash Advances as Alternative Business Funding

One of the hardest hit markets in the credit crunch of recent years has been the small and medium business owner. Many small and medium businesses have found that they simply cannot get approved for any kind of lending from their banks, and this is causing their businesses real, and in some cases fatal, funding difficulties. As more and more business are hit with drying lines of credit, merchant cash advances are becoming increasingly popular. An alternative to a bank loan, merchant cash advances can be more easily attained for businesses in certain markets – namely ones that process high numbers of transactions through debit/credit card payments. Merchant cash advances are not deemed to be loans, and as such are not regulated as loans, so businesses need to be wary before entering in to any agreements. That being said, many business owners are finding that desperate times call for desperate measures, and the merchant cash advance industry is flourishing. So what exactly is a merchant cash advance?

What is a Merchant Cash Advance?

Very simply, a merchant cash advance is an up-front lump sum payment in exchange for a percentage of future sales processed by debit or credit card. A small business, for example a family restaurant, may find that they have cash flow issues and cannot get any lending from their bank or credit institution. They approach a merchant cash advance company that agrees to give them a lump sum, let’s say $10,000. In return, the restaurant agrees that a percentage of all credit or debit card payments go straight to the cash advance company until they have paid an agreed amount, e.g. $12500. Depending on the agreement and level of turnover, the percentage per payment could be as low as 1-2% or as high as 20 – 25%. In most instances, the payment is arranged so that the card processing company splits the transaction amount between the retailer and the cash advance company. Once an agreed repayment amount is reached, the retailer reverts to receiving the full proceeds of their card payments.

What are the Benefits of a Merchant Cash Advance?

Merchant cash advances can be extremely beneficial for small companies. If a business cannot get a small business loan, or is informed that they have a poor credit history, then standard lending is not feasible. A cash advance company is more concerned about the processing volume of card transactions than they are with credit history. The small business benefits from access to cash, and from the absence of a fixed term repayment contract. If they have a particularly slow month, their repayments to the cash advance company are in turn proportionally lower, meaning there is far less of a burden for seasonal businesses. Similarly, the application process is often far simpler and less time consuming to complete. For the cash advance company, the greatest risk involves the company going under before the amount has been repaid. Depending on the risk of this happening, the amount requested, and effective “cost of credit”, will vary between applicants. Unlike a standard small business loan, the cash advance company does not have to worry about the business not meeting set repayments as they will receive a percentage on even the quietest days.

What are the Drawbacks of a Merchant Cash Advance?

Merchant cash advances are considered sales and not loans – i.e. the cash advance company is buying a set amount of future sales. This means that the typical usury laws – that is the laws governing what percentage can be charged on amounts forwarded – do not apply. As a result, merchant cash advance companies can charge fees that would be quite in excess of that of a comparable bank loan. Similarly, because the cash advance is not deemed to be a loan, it is not deemed to be discharged under bankruptcy proceedings. This means that a business owner or business that has been declared bankrupt can still be legally pursued for any outstanding debt in respect of a merchant cash advance. The cash advance company also faces potential inflation losses. If a company’s trade is considerably slower than predicted, it may take far longer than anticipated for the cash advance to be repaid, and this could impact on the net profit for the cash advance company.

Are Merchant Cash Advances a Viable Source of Funding?

Not only are they a viable source of funding, but for many small businesses and start-up companies they are the only source of funding available. Merchant cash advances are a very real and legitimate method of accessing lines of credit when options are limited. The problem is that there is little to no authoritative regulation in place to govern this type of funding. As a result, cash advance companies can draw up complicated and restrictive contracts heavily weighted in their favor, and the retailer has little protection in the event of any dispute. There are a core group of experienced cash advance companies that specialize in merchant cash advances, and they take great pride in their business. However, there are just as many unscrupulous companies that are simply trying to cash in on an increasingly popular financial product. Anyone looking to avail of a merchant cash advance should take the time to research the company they enter into agreement with, and should also have the agreement read over by their solicitor before signing anything.

Merchant cash advances can be extremely beneficial to both parties if used appropriately, and as more customers go cashless, more companies will see the benefit of providing cash advances. While some stricter regulation on the matter would be welcome, businesses can still protect themselves by only entering into an agreement that they have carefully researched and understood.

Mar 25, 2012

Unsecured personal loans for bad credit

If you have a bad credit score and a damaged credit history, financing can be challenging in current economy. Personal loans for bad credit are not an exception here. Some tips provided will help you to find a way to get a loan and to get it on reasonable terms.

Bad credit usually applies to a credit score above 600. Credit score numbers in theory can be between 300 and 850, but normally banks never borrow money to anybody with a credit score below 500 – it is considered too risky. In the past a person with a credit score about 500-600 was able to get a loan. In today’s economy with low appetite to risk, credit score brackets of 620-675 is the lowest ranked bad credit that can get a bank loan. Everybody width a credit score below 620 now is a treated as a subprime borrower.

You need to understand that when borrowing money with bad credit you will:

  • Have less credit limit than ones with a better credit.
  • Pay more interest, sometimes significantly more interest than for secured loans and loans for specific purposes.

The reasons to take a personal loan can usually be the following: urgent car repairs, medical emergency, sometimes even vacations, gifts and other unexpected spending’s. In some cases it makes sense to use a personal loan to repay all other debts – credit card balances, outstanding payments, etc. The first thing to consider is that the terms of a new consolidated loan should be better. Several banks have special personal loans that are targeted to those who want to consolidate debt.

Personal loan in most cases is unsecured (that means it doesn’t require any collateral) and provides you with money that you can spend on your needs by your own will. The drawbacks of such a freedom are the high rates, short terms and very strict fees on late payments. But if you have a valuable asset (a house or other property is an ideal, but it can also be a vehicle, a bank CD (certificate of deposit), maybe stocks) it can be used to secure your loan – it will reduce risk for the bank and let the bank to make your interest rate lower and the loan amount bigger.

Personal loan always have a payment schedule where all your future payments are calculated. Make sure you are aware of all additional fees (late payment fees and other conditions). Some loans have a fee for paying off your debt ahead of schedule – you need to consider this if you plan to repay a loan faster than it was scheduled.

How to get a personal loan with a bad credit

If your credit score is considered as subprime (usually below 600 points) and your credit history is impaired it will be really hard to find a bank loan under any conditions. However you are not along in this situation, some researchers say about a third of all Americans are in this category and the opportunities to get a bad credit loan are growing  – for example today about 10% of all mortgages national wide are taken by subprime borrowers. Here are several steps to follow in your shopping for a loan:

1)      Shop around for a loan one more time. Stop by several bank offices, credit unions. Maybe you are still eligible for a bank loan on regular terms. Especially if your credit score is between 620 and 640 – you just need to search more thoroughly and you’ll find a loan. Try to find a co-signer among your friends and family – if the person in a better financial shape than you are it will increase your chances significantly.

2)      Try to contact banks where you have long relationship – if you have a checking account or a savings account there it can help a lot. Credit union at your job (if it has one) can also be a good start. The main advantage to ask these lenders is that they know who you are and know your history and what to expect – it will help them to better evaluate risks.

3)      If previous steps didn’t help you are likely considered as a too risky borrower. Try to think one more time is it really necessary to get this money today? Maybe you can postpone some spending’s and work on your credit score and financial health for some time.

4)      Check peer to peer lending opportunities. Peer to peer lending means that you will borrow from individuals. It can be more costly for you, but it is not so depending on the procedure and formal credit history indicators as the bank loans.

5)      The last option is to shop around for a cash advance loan or a payday loan. These loans are sometimes referred as predatory because they usually have really high APR (400%-500%) and very short terms (from one to four weeks normally). On the other side these loans are provided without credit check, and no fax needed to confirm your information about yourself. The amount borrowed is between $150 and $1500 and you’ll have to pay about $10-$15 interest on every $100 borrowed.

If you will miss payment on the due date sometimes you’ll get a grace period (but not necessarily – confirm this when you check credit terms) but after it finishes your debt will increase on a fee and then may go to collectors.

However the best advice will be to improve your financial health and save more for the emergencies that can happen, nobody can feel bulletproof from financial difficulties and the best way to fight them is to stay informed.

You can also check the rates of the online lending companies to see if they fit your needs.

Mar 18, 2012

Payday loans compared to other quick money

If you apply for a payday loan online in the internet, the process of getting the money will be quick and easy. After filling a simple application form, the approval will not take long, and money will be transferred on your bank account withing an hour (in some cases on the next bank day). If you visit payday lender office in person, you can get your money right away from the counter.

No credit check is needed, no fax usually too

Payday loans doesn’t require a credit check. That is important for those who have bad credit score and still need an emergency loan. It also helps to keep a process of borrowing money simple and streamlined. Most lenders doesn’t ask for a proof of your salary and residence – no fax is needed to approve your application.

A flip side of this is that the risk of being not able to repay the loan is on you – nobody will tell you if this money is too much for you at this moment – you should make a decision yourself.

Cheaper than overdrafts for small amounts

Typical overdraft fee for a debit card is between $30 and $35. For the small amounts that flat fee can cost you more than payday loan fee. For example a payday loan for $100 will cost you extra $10 -$15, loan for $200 will cause $20-$30 overheads. That mean that if you need more that $200 payday loan, you can consider an overdraft, if less overdraft will cost you more than payday loan.

 Credit cards are usually better if you have one

 Normally if you have a credit card with a credit limit that is enough for your current money needs – it will be the best option for you to use a credit card to borrow money. Credit card APR is usually significantly less than a payday loan interest. And it is more convenient to use a credit card anyway.

But if turns out differently if you need money in cash – take into consideration that credit card cash advance has much worse terms than a credit card purchase. If you withdraw cash from a credit card account you usually pay extra fees and an increased APR:

      Interest rate is much higher for cash advance than regular credit card purchase APR – it is 20-25% normally.

      There is no grace period at all (that is what you normally expect from a credit card) for credit card cash advance –interest starts ticking at the moment you get the money form an ATM.

      From 2 up to 4 % additional fee is applied to the cashed amount when you take cash advance. For some credit cards these fees are flat and do not depend on the amount cashed out.

      Cash advance debt with higher interest rate usually cannot be paid out before the outstanding credit card balance. That helps you to get to the debt trap and makes your bank reacher.

But remember that if you will not be able to repay a credit card debt it will not only damage your credit history but also involve additional fees that can easily double your debt.

Average payday loan APR

Regular payday loan term is very short – usually till the next paycheck within a two week period. But to still be profitable for a lender and to cover processing fees and probability of borrower default it needs to have relatively high APR – somewhere about 300-400% annual. That usually is much higher than most state allowed APR for regular loans which is about 60% APR normally. Some states give a cap over a fee that can be asked for every $100 of a payday loan – e.g. $15 for every $100 of a loan, or $10 for every $100 of a loan plus $5 over entire loan.

With a view of the above the cheapest option for a urgent money need is a credit card, next one is a debit card overdraft (but only for more than $200 loan). But if an individual doesn’t have an opportunity to get a credit card or doesn’t have a debit one, but urgently needs money, payday loan can be the last option.

Mar 16, 2012

Payday loans for a first-time borrower

Pay day loan is a non-secured (or secured by a person’s next paycheck) loan. A classical payday loan is available for a person that has regular paychecks. In the past it was usually given in a form of post-dated checks with the loan amount plus interest and fee included. If the person didn’t have enough funds on the account on the due date, the check bounced and the debt was increased on a check bouncing fee. Currently online payday loans are a much more convenient way to borrow small money for a short period- you just fill the application and in 1 hour (sometimes on the next day) the money are on your checking account . Typical payday loan amount is about $300-$500. The length for the loan is usually a one-two weeks, sometimes 4 weeks to accommodate to those who receive monthly salary.

Requirements for a payday loan

To qualify for a payday loan a person should only have a regular job with a minimum wages, proof of state residence and a checking account. No other financial product can be received as easy as payday loans.  Online payday loans usually have the following requirements: 18 year old and older, have a job with at least $1000/month salary, have a phone number and a checking account that was active for at least 3 months. When you fill an application online you are usually asked for your name, home address, your job information, and your account information.

Situations when payday loan can be used

Payday loan should be considered as a last chance borrowing when banks and other lenders refuse to lend you money. Typical situations when payday loan can be necessary:

  • Your car is broken and needs to be fixed urgently. You need several hundred dollars before the next paycheck and you are 100% confident your paycheck will have enough money to repay the loan.
  • Your need to pay a rent or other important bill immediately. But you still have confidence in receiving your paycheck soon.
  • You face a medical emergency or a medical problem than needs to be addressed immediately. Actually that is the most common situation when payday loan is
  • Vacations or some unexpected events. It’s your decision of course but is it really so urgent and necessary?
  • Your home needs urgent repairs. In this situation you usually can wait – maybe consider making repairs after you have enough funds.

When payday loan can be good for you

Applying for a payday loan online is an easy and quick process, but you should better understand  what are the pros and cons of this financial product before making your move.

If you have a credit card with an unused credit limit it will be usually cheaper for you to borrow money from your credit card account. Even taking money from your credit card in an ATM (that is called credit card cash advance) can be cheaper despite higher rates, fees involved and other cash advance complications (see credit card and payday loan comparison below). But be advised that if you will not have sifficient funds on the due date you can face serious problems and additional fees.

If you have a debit card with not sufficient funds on the account you can use debit card overdraft to finance yourself. Average overdraft fee is between $30 and $35. For the small amounts it can be more than a payday loan fee, which is restricted by $10 -$15 for every $100 of a loan in some states. For example if you borrow $300 payday loan will cost you additional $30-$45. If you need to borrow less than $300 payday loan can cost you cheaper.

Any type of  personal loan from a bank will cost less for you. The only serious drawbacks of bank lending are credit checks (that a person with bad credit will not pass), time that takes your approval for a bank loan and paperwork needed to be done to get a loan.

So if you are confident in you source of income and chose the speed and convenience of a payday loan you can apply for a payday loan online.