Truth about Payday Lending
In the last couple of years, the government and consumers have come down hard on the payday lending industry, accusing them of loan sharking and lending fraud. This article will review how payday lenders operate within legal limitations, the benefits it offers to consumers, the risks of obtaining payday loans as well as alternatives to payday loans.
(PRWEB) May 31, 2005 -- In the past decade or so, there has been a lot of
advertising on short-term cash solutions and you may have noticed countless
“Payday Lenders” pop up in almost every neighborhood strip mall. Nowadays, there
are more payday lenders across the United States than McDonald’s. In the last
couple of years, the government and consumers have come down hard on this $40
billion-a-year industry, accusing them of loan sharking and lending fraud. As a
result, the payday lending industry is currently facing high regulations and low
consumer confidence.
How They Operate
Almost all payday lenders
operate in a similar method that is both highly effective and profitable. Most
often, the borrower writes a personal check payable to the payday lender for the
amount they wish to borrow, plus any additional fees. The date on the personal
check reflects the borrower’s next pay date or a future date specified by the
borrower. The borrowing fees typically range from $15 to $30 for every $100
borrowed, for every two weeks.
When repaying the loan, the borrower
usually has three options. First, the borrower can let the payday lender deposit
the personal check on the agreed date. The second option is to reimburse the
payday lender the loan amount and the fees on the due date. Finally, the
borrower has the option to roll over the loan and its associated fees until next
the payday.
Benefits to the Customers
These short-term loans are
ideal for consumers who are constantly late on their payments and need the extra
cash to avoid bounced check fees and other late penalties. Since many of these
payday lenders do not require a credit check, it is much more convenient for
customers to obtain payday loans when compared to other conventional loans.
Payday loans can also assist customers to maintain a healthy credit report and
score. By paying the bills from the borrowed cash, the customers can avoid black
marks on their credit report that result from late payments.
Risks of
Obtaining Payday Loans
Customers who obtain payday loans can expect high
interest charges. Credit experts estimate that an average payday loan can cost
up to ten times as much as a personal loan. Interest charges calculated at an
annual percentage rate (APR) usually falls in between 300% to 500% and may even
rise up to 1,000%.
Most people who are in dire financial crisis often
fail to repay their payday loans on the agreed date and end up renewing their
loan in the hope of paying it off in the coming weeks. This method tends to
yield disastrous results as most often customers get trapped in an endless cycle
of debt.
Customers who bounce their payday loan checks can expect to pay
high ‘bounced check fees’ from both the payday lender and the bank. This often
leads to additional financial woes for the customer.
Alternatives to
Payday loans
High interest payday loans should only be considered as the last
possible option. If money is hard to come by and you are faced with temporary
financial set backs, contact your creditors and explain your situation to them.
Most creditors will temporarily reduce your interest charges and may even cancel
your outstanding late fees and other charges.
If your credit is somewhat
reasonable, obtain a short-term loan from a credit union or your local bank. If
you are unable to secure a loan and have ample available balance in your credit
card, try taking a cash advance. Keep in mind that cash advances do not fall
under regular purchases and usually comes with hefty interest charges and
fees.
Customers who often fall behind on their payments should obtain
professional assistance from personal finance experts. Non-profit credit
counseling companies such as CreditGUARD of America are created to provide these
services to consumers who are currently experiencing high debt and interest
charges. Credit counseling companies can reduce or even eliminate debt and
interest charges and can consolidate all your debt into a one low monthly
payment.
CreditGUARD of America is a non-profit credit counseling agency
that assists consumers through credit counseling and financial education. Please
visit our web site at www.creditguard.org or call 1-800-867-0406 for a free
consultation with a certified credit counselor.
Contact:
www.creditguard.org
1-800-867-0406
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Source : http://www.prweb.com/releases/2005/5/prweb245613.htm