26
Mar

High Rate Loans – Pros and Cons

ccIf you do not know the term “Pay Day” or its variations, consider yourself lucky. At least financially.

The term “Pay Day” is a euphemism. Let us first define it for what it really is.

Payday lending is a form of short-term lending without collateral to people with little or no liquidity, or a bad credit rating. Pay Day is a generic term. Companies in this form of lending go by other names, such as Cash and Go, Advance Pay, Loan Up and Cash Carry. Sometimes these are also called Accommodation Loans or Instant Cash.

Whatever the name, here is a statistic to show how prevalent they have become in a few short years (probably last ten years) in the US. There are some 22,000 companies in Pay Day business, making $40 billion in loans and collecting $6 billion in interest and fees. This number may already be dated, since more companies are coming on line.

REASON FOR PAY DAY POPULARITY

Here are the reasons:

  1. As a business model, it is proven to be resilient and profitable. Diverse portfolio, small exposure, short term nature of the loan and catering to a sector few traditional lenders touch.
  2. With Americans’ incomes not keeping pace with inflation, and increasing illegal immigration, there is growing need for Payday type loans as more and more people live from paycheck to paycheck.
  3. While there is State level regulation on Payday practices, this form of lending is highly unregulated and as yet unchecked in any real form by Federal government. And State supervision is spotty. So no wonder new Payday type lenders are cropping up all over.
  4. Because of small loans and not much oversight, entry barriers are low.

PROS AND CONS

Pros:

  1. Easy terms, no collateral
  2. Negative credit history is not an obstacle
  3. Very local
  4. Caters to a segment of population which has no other alternatives to cover their expenditures or budgets

Cons:

  1. Very high rates of interest (although many States have Usury laws, so Payday lenders skirt it by calling these “fees” or “service charges”
  2. Addictive. Since money is easily available, there is less incentive to save and forgo certain expenditures
  3. Does not improve borrower’s credit history–whereas getting credit from a traditional source, even a store, and paying it down regularly will actually improve your credit rating and open up other doors to borrowing

WAYS TO AVOID PAYDAY

  1. Get in the habit of budgeting your income and expenses and do it conservatively. This will help you manage your cash flow and enable you to predict it—that way you can find ways to either boost your income or reduce expenses. It also will help you to prioritize your expenses
  2. Diligently note down your expenses
  3. Try to put internal limits on when to use a credit card. I advised someone to not use a credit card for single-shop charges below $25. It is amazing how quickly she realized money was flowing through her hands. She never appreciated this when flashing credit cards, and making minimum payments.
  4. Pay off all or most of credit card balance each month. Credit card companies are only a slightly softer version of Payday lenders.
  5. I prefer loan from a friend or from family although I realize it is not always possible
  6. Treat Payday as the absolute last resort, before bankruptcy. That will help you strengthen your resolve to avoid them as long as possible
  7. Get Credit Counseling. Like someone who wants to lose weight must seek professional help, if you are unable to balance your checkbook, you need to see a professional financial advisor.
  8. See if you have an asset that can be monetized. It may be jewelry you do not use or a house bigger than you can afford. This is the absolute first step to repairing your financial health.
26
Feb

Understanding the Ins and Outs of Payday Loans

22Financial problems can be extremely stressful especially if you need the money instantly. Emergency expenses such as for health reasons, tuition, bills, repairs, mortgage on imminent due date, and more can strike when you least expect it. For average-earning employees, facing these financial deadlines could mean sleepless nights and inevitable headaches. So, what could be a possible solution? You may opt to apply for what is referred to as payday loans.

Definition

Payday loans are generally short-term loans that offer a quick solution to your financial woes and can be paid on your next payday, hence, the name. Most of these payday loans are offered to people who needs money urgently and are willing to repay during the next payday with a hefty interest factored in. Payday loan companies are now growing at a considerable rate, making it one of the industries often searched on the web. Availing this loan is considered simpler as compared to other loans that banks and financial institutions offer.

The Criteria

Payday loans are unique in terms of the application, processing, as well as the turn-around time. While most of the lenders boast ‘a no credit checking’ system, borrows still need to pass certain criteria to qualify. For example, borrowers must be of legal age and must possess a bank account. Another important requirement is to provide a document that would ensure that you have a steady earning and would be able to repay the amount loaned on time. Many lenders require completion of a document before the loan is processed. One of the easiest and most convenient method to apply is by sending all forms and requirements online. It is also vital to point out that such type of loan is far more lenient than traditional loans you know. For instance, people with awful credit score may still avail of the services.

The Amount and the Payment Terms

Generally, the loanable amount varies per state or per country. For instance, in the US, there are still states where payday loans are deemed illegal. However, in some states, borrowers can borrow between $50- $10,000 depending on the credit score. It is important to understand; however, that even if you borrow a hefty amount of money, you still have to repay it within a short period of time.

Lenders also charge borrower’s interest rates called the APR (short for the Annual Percentage Rate). Although states have their own ways of imposing strict APR’s on loans, the interest rate calculated on payday loans is still considerably higher than the regular type of loans. An average of 20% of you loaned amount is a conservative estimate of the interest that could be possibly added to your loan principal. A rolling interest is imposed once a borrower fails to pay right on time. It is always best to check whether your state has specific restrictions on payday loans to avoid any unnecessary charges. Get to know the local regulations and you would be able to apply for a loan with no problem at all.

The Benefits

Availing short-term loans can be advantageous, too. Check the following list to further understand the upside of this type of loan:

• Easy processing of the loan. As most applications can be completed online, approval and release of loan can be done within the day. Most providers deposit the amount loaned within 24 hours or the following business day. Having a quick access to money is one of the biggest advantages of this loan.

• Convenient repayment channels. There is no need to go to the office as borrowers can repay their loaned amount through an auto-debited account. This is why an active current or checking account is necessary to provide upon the application period.

• Having a bad credit history is not a problem. Most banks would turn down applicants with bad credit standing. With payday loans, this point is waived.

• No collateral required. No hassle and no other documents required apart from the application form ad banking details.

The Downside

• Not all states are legally authorized to offer payday loans. You must check this info first.

• The cost and fees are considerably high. The APR, as well as processing fees, can be higher than other types of loans. If you are unwilling to pay for massive interest rate, then it is better to study your other options well.

• Being unable to pay on time also leads to bigger penalties and interests.

With a number of payday loans providers, it is a must to make comparisons. For instance, reading reviews will be helpful. Borrowers must also remember that these loans are designed to provide a solution. Therefore, it is a must to repay on a timely manner. Otherwise, a bigger financial problem may come your way. In other words, use payday loans as a way to resolve the problem and not as a platform to get into a bigger one.

23
Feb

A Rundown on the Fundamentals

rPayday loans happen to be one of the most advertised services you can find online. These loans are considered ‘short-term’ and are designed to offer clients a quick relief from financial troubles. People who are faced with unpleasant and unexpected finance-related problems often resort to loans for a quick fix. Others who find it difficult to stretch their budget until the next payday also come running to these quick loan providers for a little help. These payday loan stores usually offer round-the-clock services online.

If loaning money would ease your monetary burden away, this type of loan can easily be the answer to your needs.

So what are requirements are needed to avail the loans? Read on and learn the rest of the payday loan loans fundamentals.

What are the basic requirements?

A typical payday loan provider would normally ask applicants to complete or fulfill basic requirements to be eligible for the loan, such as the following:

• Borrowers must be of legal age. This means borrowers must be at least 18 years old in the UK or 21 years old in the US.

• Borrowers must also submit proof of permanent income.

In some cases, when the borrower is unemployed, he will be requested to submit any document that would attest to his capacity to pay the amount loaned.

• Borrowers must be a holder of valid savings or checking account.

What is the application process like?

Most lenders or loan provider now have their online portals so borrowers can apply even without having to drop by the office. Customer service representatives receive the applications and then process them. Borrowers can have their application approved in as short as one hour to 24 hours. The loan will then be digitally credited to their preferred bank account. Applicants with good credit standing often get to enjoy the money within the same day of application. The paperless application makes the entire process a breeze.

Other options may be provided. To some people who do not want to have the money deposited to their account, they can avail of the loan through checks. Each lender has its own set of rules, but most loan providers employ a simplified loan processing system.

What makes payday loans so enticing?

Most lenders market their services as a ‘no credit checking’ required system. They tend to capture a bigger market as those who have failed to be approved in traditional loans get another chance at this. The convenience in applying online, the simplicity of requirements, and the lenient processing are all a big plus to those who need instant cash the soonest possible time.

What are the loanable amounts?

In the US, the minimum amount depends on the state. In some state, borrowers can loan $50 minimum to a maximum of $1000 that is payable in 2-4 weeks. With some payday loan providers, they tend to require checks from borrowers if the amount exceeds $500. Note that there are states that also prohibit this kind of business.

How much are the interest rates?

This is probably one of the most important points to consider when planning to apply for this type of short-term loan. Payday loans come with a very high-interest rate. To illustrate an example, a borrower may have to pay an extra $20 for every $100 borrowed. Note that as this is a short-term loan, the amount may have to be paid back the next pay day or a within a maximum of three months. On average, a borrower in the US is required to pay roughly 400%, this is according to the Consumer Federation of America. When a borrower fails to pay the loan within the given timeframe, a massive interest rate is again included in the calculation.

Do banks offer payday loans?

Commercial banks are now slowly inching their ways towards this industry. Apart from the enormous returns earned in short-term loans, the growing market and potential customers are also growing by the day. This is also another way for banks to convince people to open checking and regular savings account. The banks can have full control and can easily monitor the borrower’s personal cash flow, making it easier for them to background and perform credit check if he or she intends to renew her loan. It is also a more convenient way of deducting payments directly from a bank accounts. Therefore, it is no longer surprising if all commercial banks would eventually branch into this kind of business.

What should borrowers remember?

Payday loans, like a mortgage or any type of loans, is a responsibility. It entails obligations and comes with serious penalties if not settled. Borrowers need to remember that while the loans are instant, they should stay within a reasonable bracket when applying. A number of interests are non-negotiable and they should expect a massive difference between the loan principal and the amount to be paid. As in any other crime involving money and the neglecting payments, serious legal consequences await irresponsible borrower.