Browsing articles in "Payday loans"
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.

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.