Payday Loan Times

Courtesy of an AOL Money & Finance blog …

For the uninitiated, payday cash advance lending is an industry that provides short-term loans that are generally due when the borrower receives his next paycheck. For this “service,” the borrower pay an outrageous interest rate, generally 10-30 dollars per 100 dollars borrowed, a steep rate for a 14-day loan.

Advocates of increased regulation of the payday lending industry frequently point out that, annualized, the interest rates on these loans frequently runs high into the triple-digits. The Consumer Federation of America reports that the average annual interest rate on these payday loans is 470%.

It seems that, these days, you will make very few friends as an apologist for the payday lending industry. To help battle its hugely negative image, the industry trade group, The Community Financial Services Association of America, has launched a nationwide advertising campaign, and promised to give borrowers more time to pay off loans.

Thirteen states have effectively banned payday lending, although Georgia is currently mulling allowing it again. According to the National Conference of State Legislatures, 52 no fax cash loan related bills have been introduced in state legislatures.

Critics of payday lending argue that it traps borrowers into a cycle of debt, and preys on low-income people, especially minorities. This is a legitimate complaint to be sure. In fact, it sounds a lot like another opportunity that is heavily regulated by states. and that states run: the lottery. According a study conducted at the University of Georgia, African Americans are three times as likely as whites to play the Lottery frequently. An individual without a high school diploma is four times as likely to play the Lottery as someone with a diploma.

An African American male without a high school diploma is more than 30 times more likely to play the lottery frequently than a white female with a post-secondary education.

I certainly don’t think that online payday loan lending is good for consumers, although the CFSA makes that case:

But, even if the loan was rolled over for the entire year, the high APR of payday loans pales in comparison to the realistic alternatives considered by consumers.

How does a $100 payday loan compare?

$100 payday advance with a $15 fee = 391% APR
$100 bounced check with $54 NSF/merchant fees = 1,409% APR
$100 credit card balance with a $37 late fee = 965% APR
$100 utility bill with $46 late/reconnect fees = 1,203% APR.

(Read on …)

We spend so much time talking about faxless payday loans, we figured it was a good time to stop for a moment and review various details regarding them:

What is a payday advance loan?
Short-term, small, single-payment loans intended to carry the borrower through a temporary cash deficiency. In exchange for the advance, the lender receives a personal check - dated for the borrower’s next payday - for the amount of the loan and the finance charge.

Why such high rates for borrowing?
The structure of payday advance loans makes them costly to originate these short-term loans, whose default rates substantially exceed the customary credit losses at mainstream financial institutions.

What’s the downside?
Consumer groups sharply criticize payday lenders for selling overpriced cash advance loans to people who are already experiencing financial difficulties. Critics further contend that payday borrowers are not well-informed about the true cost of their borrowing, and that lenders engage in deceptive and unfair practices, particularly practices designed to encourage repeated loan rollovers.

What’s the upside?
The payday loan industry claims to provide a valued service to underserved consumers. Industry leaders note that mainstream financial institutions have withdrawn from the market for very small, short-term loans.

Are borrowers chronic?
Apparently. A 2005 FDIC study concluded fewer than half of a typical faxless payday loan store’s customers took out six or fewer loans per year.

Do lenders prey on the poor and minorities?
Numbers vary. A 2001 study of borrower demographics showed more than half of all borrowers had an average annual income of between $25,000 and $49,999. The study also showed 74.4 percent of all borrowers had either a high school diploma or some college education.

A 2003 North Carolina study revealed, however concluded the incidence of payday borrowing is higher among blacks and among individuals recently involved in the welfare system. Also, the study shows that individuals with impaired credit histories are more likely to use payday loans as a source of funds.

Are these businesses regulated?
Yes. Some states have outlawed the practice, but pay day loan lenders still operate in 37 states with varying regulations. In Alabama, borrowers may not have more than $500 in outstanding loans from payday lenders and loans can only be rolled over once. The maximum 14-day fee for a $100 loan is set at $17.50.

Are payday lenders and car title lenders the same?
Not according to the laws regulating them. Car title lenders have different regulations, as do those businesses that cash checks for a fee.

Don’t listen to the nay-sayers. Sometimes, you need payday cash advances to get you through difficult times. Just make sure you follow certain pieces of advice as you do …

1. Be realistic about how much you need
It’s tempting to suddenly get carried away when borrowing money and decide that you’ll upgrade your holiday to business class, or double the budget for a wedding – but remember that you have to pay the money back, so be realistic.

Write a detailed plan as to how much your “project” will cost. So if it’s a holiday include the cost of flights, accommodation, spending money and insurance. Do not borrow more money than you need to with your no fax cash advance.
2. Paying off existing loans may save you money
If you already have outstanding debts, it might be more practical to pay them off before taking out another loan. Debts on a credit card, or other unsecured loans will undoubtedly be costing you a higher amount or interest, so if necessary consolidate these by transferring them to your new loan.
This will cost you less interest and increase the possibility of paying off the original online payday loan sooner.

3. Compare quotes using the Internet
Once you’ve decided how much you need to borrow, go online and research the best deals available. There are many excellent search engines and price comparison sites that will help you with this – and rates can change on a regular basis. Being armed with such information will make it easier for you to decide which fast cash loan you’d like to take out.

4. Work out realistic monthly payments
It’s great to suddenly receive a lump sum of money in your bank account, but remember that you have to pay it back on a monthly basis. So you need to carefully calculate your budget – and be realistic about what you can and can’t afford.

When working this out take into account all your monthly outgoings, including mortgage repayments, bills, credit card repayments, food shopping and other outgoings, such as pension payments or childcare. Compare these to money you receive each month, whether it’s salary, share dividends and benefits, such as a pension.

Your payday advance loan lender will then be able to tell you over what period of time you will need to pay the loan back. Typical time periods for paying back such a secured loan can run from one year, up to the full length of your mortgage – so in some cases this could be 25 years.

Do bear in mind that the longer you opt to pay back an amount, the more interest you will accrue, so in effect the more the loan will cost you in the long-run.

Considering the possible debt trap payday advance clients often face as a result of these resources, the Center for Responsible Lending wishes to ensure that readers are aware of alternatives.

Here’s a list of ways to receive quick cash that does not include any sort of bad credit payday loans:

Payment Plan with Creditors
The best alternative to fast cash loans is for consumers to deal directly with their debt. Many creditors will negotiate partial payments if a plan is in place. Working out a payment plan with creditors can allow the consumer to adjust billing to pay off bills over a longer period of time.

Advances from Employers
Some employers grant paycheck advances to employees. Because this is a true advance, and not a loan, there is no interest and the advance is therefore cheaper than any online cash advance.

Consumer Credit Counseling
There are various consumer credit counseling agencies throughout the country that can help consumers work out a debt repayment plan with creditors or develop a budget. These services are available at little or no cost.

Emergency Assistance Programs
Many faith-based groups and community organizations provide emergency assistance, either directly or through social services programs. For example, in partnership with state agencies, the federal Low Income Home Energy Assistance Program provides financial assistance to low-income households that are in a heating or cooling (weather) related emergency.

Credit Union Loans
Many credit unions offer small, short-term loans to their members. For example, North Carolina State Employees’ Credit Union offers members a salary advance loan at 11.75% annual interest - 30 times cheaper than a typical payday loan. Some credit unions also offer free financial counseling and a savings plan to help members get back on their feet.

Cash Advances on Credit Cards
Credit card cash advances, which are offered at about 30% APR, are much cheaper than getting a payday loan. Some credit card companies specialize in consumers with financial problems or poor credit histories.

Secured credit cards are another option. A secured credit card is tied to a savings account. The funds on the account ’secure’ the amounts charged on the card. Once a consumer has successfully used the secured card for a period of time, they can then qualify for a regular unsecured credit card.

Military Loans
Several companies offer loans ranging from $500 to $10,000 to active duty and retired military personnel. Payday loans are 10 to 13 times more expensive than these small consumer loans. These loans cost less than payday loans because they have much lower APR, ranging from 33% to 34.99%.

Numerous articles these days talk about the growing level of debt among U.S. troops. Many blame the proliferation of regular and/or no fax payday loans for this problem.

As The Motley Fool states, however, even if your job doesn’t require you to wear body armor and dodge bullets, the problems soldiers face contain some important lessons for everyone. Ask yourself:

• Is the size of your debt bothering you? If you’re spending a lot of time worrying about car payments, credit cards, or if fretting about quick payday loan bills distracts you from work, home, or hobbies, your debt load might be too high for your comfort.

• Do you live for today? Enjoying the moment is important, but not if you have to sacrifice your future. It may be time to take a second look at those debts if they prevent you from saving for retirement or meeting some other long-term financial goal.

• Do you have financial smarts? Before you take on debt, understand the terms and conditions, along with the repayment requirements on resources such as cash advance loans. Make sure the size of the debt is comfortable for you, not just for the lender.

• Do you visit the payday advance lender? Even if you don’t actually take out cash advances, you’re doing something similar if you borrow with credit cards. That high-interest loan against your next paycheck is just sitting in your wallet waiting to see some sunshine. Credit cards, used wisely, can be useful tools, but they can also run a person into deep debt quickly.

A lot of this may seem like obvious advice - but it still helps to review it. The bottom line is typically to simply remain aware; don’t sign up for any payday loans online, for instance, unless you’re familiar with all the terms and rates.

As online payday loans - and, of course, websites sponsoring them - spring up over England, a need has arisen for an unbiased guide to help borrowers understand the pros/cons of these resources.

Enter The UK Payday Loans Guide. Exit confusion.

This site provides a wealth of information to anyone merely contemplating the use of a payday advance. Foe example:

• The average no fax payday loan is not the impoverished, but the middle-class, especially women.
• Nurses and teachers are the most common borrowers; those with adequate salaries for their usual expenses, but budgets that can't always handle unexpected bills.
• Car repairs, deaths in the family and illness are three of the most common reasons listed for needing payday cash loans.

Unfortunately, consumers are not always aware of how the fees for payday loans can add up. While 10-20% may seem like a reasonable fee for a short-term loan, these numbers increase to over a thousand percent annually. In comparison to traditional loans, the fees involved are astronomical.

But traditional loans are often too large and even unavailable to many borrowers who have poor credit. Hence, the need for bad credit payday loans.

Payday advance questions: Frequently asked questions relating to regulations, fees, and comparisons to cash advances on credit cards or credit lines on checking accounts are explored in detail through this service.

Additionally, the history of short-term, payday cash advance lending in the United Kingdom is explained, as are definitions of usury and loan-sharking. With the expansion of high-interest lending practices in Great Britian, the need for a practical guide to payday loans seemed needed more than ever.

You probably see the ads everywhere: Receive a faxless payday loan today! No credit checks required and quick deposits every time!

Especially as many states are cracking down on brick and mortar cash advance businesses, the online world for these resources has been booming. Here's how it works:

The Process of Acquiring a Personal Loan Online: Various reputable cash loan lenders now operate online. To begin the process, simply submit an online application for review.

Answer all required question - and include pertinent information such as employment, income, bank account information, etc. Some online payday advance companies require you to fax in documents, among which may include a copy of your driver's license and pay stubs. They need proof of employment.

With a no fax payday loan, though, no faxing is required. However, the company will verify all information. Your application is simply approved and the company will direct deposit the funds into your bank account.

Requirements for Receiving a Payday Cash Advance: Although no faxing payday loans involve no credit checks, you must meet certain criteria.

For example, you must have a current job, verifiable checking account, and be at least 18. Furthermore, some no fax cash loan companies require a monthly income of at least $1000.

Before signing and agreeing to a personal loan, read the document carefully. Understand the interest rate, fees and due date. These facts should help you avoid defaulting on the payday loan.

In this week's Hattiesburg American, Tawnya Crockett talks about alternatives to payday loans. Let's look at them: 

• When you need credit, shop carefully. Compare offers. Look for the credit offer with the lowest annual percentage rate - consider a small loan from your credit union, a loan company or family or friends. These have lower interest rates than cash loans.

• Compare the APR and the finance charge (which includes loan fees, interest and other types of credit costs) of credit offers to get the lowest cost.

• Ask your creditors for more time to pay your bills. Find out what they will charge for that service - as a late charge, an additional finance charge or a higher interest rate. IF you must take this action with a faxless payday loan, be aware of rollover costs.

• Make a realistic budget, and figure your monthly and daily expenditures.

• Avoid unnecessary purchases - even small daily items. Their costs add up. Also, build some savings - even small deposits help - to avoid borrowing for emergencies, unexpected expenses or other items. For example, by putting the amount of the fee that would be paid on a typical $300 cash advance in a savings account for six months, you'd have extra dollars available.

• Find out if you have or can get overdraft protection on your checking account. If you're regularly using most or all of the funds in your account and if you make a mistake in your checking or savings account ledger or records, overdraft protection can help protect you from further credit problems. Find out the terms of overdraft protection.

• If you decide you must use a cash advance loan, borrow only as much as you can afford to pay with your next paycheck and still have enough to make it to the next payday.

So … you're interested in a payday loan online, but have concerns about how well your information will be kept private? It's an understandable worry.

But it's not needed. Let's start by going through the facts and figures taken down by lenders via this process:

1. The information provided by the applicant on the online form, such as years or months of employment and the monthly wage.

2. The data regarding the client’s transactions with the no fax cash loan lender such as the amounts previously loaned and payments made.

3. The record of the client’s transactions with other companies or lenders, such as whether the client has applied for other payday loans or not.

4. The report from a consumer agency, but this report is not about the client’s credit history because that's never an issue with these resources.

Sadly, there are unscrupulous hackers out there. That's why you do need to be careful. To prevent any violation of privacy, online lenders have installed comprehensive and tight security measures. Such measures are meant to keep the confidentiality and integrity of the information provided by a payday advance loan applicant.

One of these security measures is called the 128-bit SSL encryption technology. SSL stands for Secure Socket Layer. The SSL ensures that any data transmitted from one computer to another cannot be viewed publicly by anyone.

Another security measure is, of course, the client’s username and password. Once you come up with these, no one else will have access to your personal account.

It does the online payday loan lender or company no good at all to share your information with anyone else. You can rest assured that these providers are as anxious as you are to take every precaution in order to guarantee that you remain their satisfied client for the long haul.

The ads are on the radio, television, the Internet, even in the mail. They refer to payday loans, which offer fast cash, but at a very high price.

Check cashers, finance companies and others are making small, short-term loans that go by a variety of names. In most cases, however, the process is the same — a borrower writes a personal check payable to the lender for the amount he or she wishes to borrow plus a fee.

The company, in turn, gives the borrower the amount of the check minus the fee.

Fees charged for no faxing payday loans are usually a percentage of the face value of the check or a fee charged per amount borrowed — say, for every $50 or $100 loaned. If you extend or have to roll it over, say for another two weeks, you will pay the fees for each extension.

Under the Truth in Lending Act, the cost of payday loans (like other types of credit) must be disclosed. Among other information, you must receive, in writing, the finance charge and the annual percentage rate or APR (the cost of credit on a yearly basis).

A cash advance loan secured by a personal check, such as a payday loan, is very expensive credit. Let's say you are strapped and agree to write a personal check for $115 to borrow $100 for up to 14 days. The check casher issues the faxless payday loan you seek and agrees to hold the check until your next payday.

At that time, depending on the particular program or situation, the lender deposits the check, you redeem the check by paying the $115 in cash, or you roll over the check by paying a fee to extend the cash loan another two weeks. In this example, the cost of the initial loan is a $15 finance charge at a shocking 391 percent APR. If you roll-over the loan three times, the finance charge would climb to $60 to borrow $100.

There are other options. Consider them before choosing a payday loan:

• When you need credit, shop around and carefully. Compare offers.
• Look for the credit offer with the lowest APR - consider a small loan from your credit union or small personal loan company, an advance on pay from your employer, or a loan from family or friends.
• A cash advance on a credit card also may be a possibility, but it may have a higher interest rate than your other sources of funds. Find out the terms before you decide.
• Also, a local community-based organization may make small business loans to individuals. There is also credit counseling.
• Compare the APR and the finance charge — which includes loan fees, interest and other types of credit costs — of credit offers to get the lowest cost.