Payday Loan Debt: What You Need To Know
A payday loan is a form of small, short-term unsecured or low-documentation loan. The loans are available from regulated institutions and may be offered for periods of 30 days or less. The following article will discuss the negative effects that payday loans can have on an individual. It will also provide tips on how to avoid these negative effects and better yet, how to get out from underneath this type of debt as soon as possible. So let’s get started.
What are payday loans?
A payday loan is a form of small unsecured though short-term loan that a lender can be paid back over a short period of time. This short period of time is typically considered to be less than 30 days but does not have to be so. Lenders typically offer the loans for periods as short as 14 days or about 20% of the year if you are in the US and roughly 40% if you are in the UK. Payday loans work by:
1.) Taking money from an individual’s account on demand and charging that individual an interest rate. The interest rate varies, but is usually between 300%-500%. This means that if a lender were to take out a $100 loan from you, they could charge you anywhere from $300 or $500 in interest. This is not the actual value of the loan. It is simply an interest rate. Technically the lender could charge you more than this amount if they wanted to, but typically, they will cap the amount at an amount that makes it seem worth their while and less like a scam. The lender typically charges you for taking your money rather than paying it out as a standard line of credit would generally do.
2.) Paying off an existing debt that is due to be paid back within the next few days with no thoughts given to the financial standing of their client.
3.) Paying for a product that is to be delivered in the near future.
4.) Offering a loan when a credit card cannot be used to obtain it.
How Do They Work?
Payday loans work by allowing you to borrow an amount of money that you could not otherwise borrow. As an example, let’s say that you have just been given your weekly earnings and have $700 in your account. You need $300 but simply do not have more money at this time to take out a loan. You could get a payday loan for $300 to cover your purchase. Your payments will cover the amount that you borrowed plus the interest.
Less than a year later, you are looking to pay back the $300 you borrowed from the payday lender. At this point, you would have made more in interest than what you actually had paid in total. That’s the way it works, but there is nothing wrong with taking out these loans on a regular basis if they are needed to make ends meet. I only say this because of how they work in comparison with other loans that people take out every week or so on their income as well as other credit lines of credit that people take out regularly.
Significance of Payday Loan Debt:
Payday loan debt is significant because of the number of people who have fallen victim to this type of “small-time” debt. Payday loan debt has grown to a $1.2 billion industry that is dominated by online lending sites such as the aforementioned CashNetUSA. The payday loan industry has taken some bad luck to heart over the last few years and are actively seeking to make sure that their customers are protected from lenders who take advantage of their customers. This is particular true in light of recent news coverage about cash advance stores that have been accused of unethical business practices and taking advantage of vulnerable people who want a quick solution when they need money quickly.
Payday Loan Debt Relief:
The first thing that you will want to do when you get into a payday loan debt is to meet with your lender. Certainly, they will work with you to find a solution to the problem, but they need to know that you are having a problem so that they can start working on it. Lenders need some type of notice from their customers that there is a problem so that they can work on the interest rates and try and make things more manageable for everyone involved.
The second thing that you should do after meeting with your lender is to find out about any programs or services that have been initiated by the payday loan industry as a whole.
Payday loans are a means of borrowing money that is not directly related to the individual’s financial status. The payments that the individual needs to make in order to have the loan paid back will cause them economic stress as well as psychological stress. Payday loans can be taken out every couple of weeks or so and they can be a means of meeting short-term needs, but it is important to realize that they are taking advantage of you when you take out these types of unsecured loans. If you feel like this is the case, you should look into contacting your state or federal consumer credit agencies for more information about their concerns with these lenders and what their current programs are designed to accomplish in terms of consumer protection.