What You Should Know About Payday Lending
Payday loans can seem like a financial quicksand – fast and short-term solution for people who need emergency cash. Payday lenders have sprung up everywhere in an attempt to persuade you into lending cash. In recent years, the government has unraveled the $40-billion industry, which they accuse of loan sharking and credit fraud. As a result, the payday loan industry has garnered criticism and low consumer confidence.
How Payday Lending Works
Most payday lenders use similar methods that are proven effective and profitable.
In exchange for borrowed money, there is an average borrowing fee that ranges from $15 – $30 for every $100 borrowed in over two weeks. The date indicated on the personal check reflects a future date set by the borrowers, and the date of the check is reflected in their bank account.
The borrowers are provided with three options: First, they can ask the lender to deposit a personal cheque for the agreed date. The second option is to reimburse the lender for the loan amount, the fees on the specified due date. Third, the borrower has the option of extending the loan and the associated fees until the next payday.
The Benefits of Payday Lending
These convenient short-term loans seem ideal for consumers who have generally poor credit rating and have no other income to cover emergency bills. Payday loans can help borrowers avoid late payments that may cause negative marks on their credit cards. Payday loans can also help customers maintain a healthy credit rating and evaluation. Payday lenders do not conduct credit checks before lending the money, so it is easier for borrowers to obtain a payday loan compared to other traditional loans.
Dangers of Payday Loans
Payday loan customers are more likely to face higher interest rates. Credit experts estimate that the average payday loan can reach up to 10 times higher than a personal loan. This compounding effect makes your cost of borrowing higher than you might expect. Interest rates, calculated as an annual percentage (APR), typically fall between $300 and $500 and can rise as high as 1,000%.
Payday loans are typically viewed as debt-traps as borrowers end up renewing their loans. This often leads to additional financial difficulties for the borrower, and the borrowers who bounce their payday cheque loans face excessive cheque fees, interest rates, and additional financial problems.
Alternatives to Payday Loans
If you are having temporary financial difficulties, contact your lender and explain your situation. Creditors can help by extending payment terms, lower interest rates, and may even waive outstanding fees. High-interest loans should only be considered as a last resort, and only in the event of a serious financial crisis.
If you have good reasons for obtaining a loan, you can go to a credit union or a local bank to secure a loan. Remember that cash advances do not cover regular purchases and typically come with a higher interest,
With a debt management program, our certified credit counselors can help you pay off your debt 3 – 5 times quicker. We simplify the payment terms by consolidating your debt into a single, lower, or reduced monthly payment. This nonprofit credit counseling service, CreditGUARD of America was founded for the benefits of customers who are looking for workable solutions to their financial struggles.
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