The Dangers of Payday Loans and How to Escape the Trap
The requirements and qualifications for getting a payday loan are few. All you really need is a source of income, a bank account in good standing, and proper identification. Some online lenders do not even ask for identification. They just want proof that you have both a job and a bank account. Payday lenders don’t check your credit to see how likely you are to pay back the debt, because they already have access to your checking account.
A Tempting Offer
Because these loans are so easy to get, there is a strong temptation for many to borrow from a payday lender and catch up on the bills. The idea of such a fast and easy method of acquiring cash for a business, to pay for auto-repairs, buy groceries, etc, is a tempting lure that gets many individuals into trouble. Ultimately, it’s not worth it. There are very real reasons why this sort of loan should be avoided at all costs.
For most people who take out a payday loan, they have no other means to get a loan. They are behind on their bills already. After taking a payday loan, they end up even further behind after paying rollover and high interest charges. A rollover is a fee the lender charges to let you wait another week or month to pay them back. The fee is often about $100.
Buried in Fees
Usually, the borrower will keep paying rollover fees to avoid having the lender withdraw the full balance of the loan from their checking account. When the borrow refuses to keep paying exorbitant rollover fees, the lender cashes in on the check, it bounces and the borrow starts incurring even more fees. Now there are bounced check charges from the bank and new charges from the lender, as much as $75 a day until the full loan is paid. In the end the borrower has to borrow more to pay off the debt, declare bankruptcy, or default, all the while receiving nasty, threatening calls from a collections agency.
on Payday Loans
In the United States alone payday loans caused so much harm to those who could least afford it that congress banned them from lending to family members of military personnel in 2006. They also capped the maximum interest rate allowed at 36 percent. The state of New York banned payday loans altogether and many other states are beginning to take same action, drafting bills to ban or regulate payday lenders.
Alternatives to Payday Loans
There are many ways to raise the money to pay your bills without resorting to the dangers of a payday loan. Most economists simply recommend you cut back on expenses, but if you have a short window of time, you’ll need to call your creditors and ask for an extension. During that extension, do what you can to cut back expenses and raise money by selling off extra stuff you don’t need. If you have to, take a second job until your bills become manageable. Even working sixty hour weeks for a while is better than falling into the endless debt trap of payday loans.
What to Do if You Are Stuck in a Payday Loan
If it’s too late, and you already took out a payday loan, there are things you can do to protect yourself. First, do everything within your power to pay the loan on time, short of taking out another payday loan. If that is not possible, you should check to be sure the lender is registered to transact business in your state. In many cases, they will forgive the loan if you catch them in illegal practices. Enlist the help of your state’s Attorney General and the Better Business Bureau.
If you have paid more in rollover charges than the original loan plus interest, the law may protect you. In many jurisdictions, lenders cannot charge more than a certain percentage above the initial loan and rollover payments count towards that figure. Go to www.paydayloaninfo.org and learn more about payday loans and what you can do to get out of the trap.Source: savingtools.com
Category: Payday loans