The payday loan is a short-term, high-interest unsecured loan that more than 10 million Americans take every year.
Payday loan storefronts are outnumbering McDonald’s and Starbucks in most places in the country. It provides an easy way for people to tide over an economic crisis.
So, though the interest is high, people choose this method when they need an urgent, small loan.
Of late, the Trump Administration started rolling back the protection that was in place since the Obama era making it riskier for borrowers.
This has resulted in the US payday loan crisis. Here is a look at what it will cost you to borrow short-term from the lenders today.
Dismantling of Consumer Protection of 2017
Under this Consumer Protection Act of 2017, lenders needed to ensure that the borrowers could repay the loan before they handed out the money.
They did by verifying information about the rent and incomes. The typical amount the average borrower wanted was between $100 and $5000.
The Consumer Financial Protection Bureau (CFPB) found that a borrower-paid almost 400 percent annual percentage interest rate on his loan. Also, they borrowed about nine times to repay that loan.
Recommendations of the CFPB
After reviewing the situation, the administration suggested abandoning the safeguards saying it would restrict access to credit.
Each state was free to determine the course of action, subject to the state laws, to serve the interests of the residents of the state.
The restriction that is in place is the bar on lenders trying to repeatedly withdraw money from the bank of the borrower.
Suze Orman, an expert on personal finance, urged people not to use these loans. By not checking the ability to repay loans, the system sucked more people into the debt trap.
Of course, people always needed money but the loan structure was far too harsh and cast a heavy burden on the borrowers.
Lenders can access the bank accounts of the borrower and if they were to indulge in heavy withdrawals, it could result in overdraft conditions.
This would damage the credit scores of the borrower. The recommendations will only go into effect from November 2020.
Impact of the payday loan
Borrowing against their paychecks is a common practice in the United Staes of America. The loan crisis comes about because borrowing $100 can result in the person owing 30-35 times that amount.
There are 23,500 payday lenders across the country and one-seventh of the millennials (age 22-37 years) taking a payday loan.
Even the Gen-Z (aged 18-21 years) have started showing an interest in this form of a loan.
What is the Payday loan?
This is a short-term loan provided by an external agency (other than the employer or the bank).
They charge high interest for it but provide the money almost instantly.
The loan is for 10-15 days (until you get the next paycheck) and so you will not feel the pinch
Working extra shifts and cutting costs will help you repay the loan.
But not everyone is as lucky.
So, think well before you consider choosing to take a short-term loan.
It might get you into the debt trap where you will remain stuck for a long time.
According to the CFPB, the low-end interest rate of $15 for a loan of $100 works out to 400 percent interest.
You might end up paying as much as $30 for a two-week payday loan.
This amount varies from state to state.
Conditions to meet to get a loan
Any American citizen can take a short-term loan.
Here are the conditions you must meet if you need this Payday loan.
- You must be an American citizen of at least 18 years of age.
- Give the number of your bank account. The lender will transfer the money to this place.
- They will take your Social Security number and the name of your employer. The individual must have worked at the place for at least three months at the time of applying for the loan.
- There is NO need to have a good credit score. Even people with bad credit become eligible for a payday loan.
- The borrower and the lender will ‘talk’ online to decide the conditions of repayment of the loan. The Payday Locker puts the two in touch with each other.
- The borrower will agree to give access to his or her bank account until they repay the entire loan amount.
- To finalize the deal, the borrower will submit the loan application online by filling in a form on the website of the service provider.
The loan service provider will put you in touch with the lender.
The service provider does not lend money or collect money from the borrower.
The loan application process
Go online and type ‘payday loans near me’ and you will find a dozen or more sites that give loans.
The borrower will pick the site he prefers, say Instant Payday NV, and click on it. This takes us to the website where one must click on Apply Now.
Once we do this, it takes us to the place where they ask your details.
You must fill in the details such as the name of your employer, social security number, and place where you live in the form.
Keeping track of personal loan is easy
One of the biggest advantages of taking personal loans is that you will know how much you paid and how much is remaining.
Unlike credit cards where the amount changes each time to swipe the card at the PoS, these loans don’t increase. The amount goes down after each repayment.
Instead of falling into an endless cycle of credit card debt, you can stay on track (or at least try) and keep your finances under control.
We know it is never easy to have a strict budget and stick to it no matter what. The times we live in don’t allow for such freedom.
However, there are people who have been able to achieve that discipline. They stopped using their credit cards to avoid unnecessary purchases.
That is the first step to avoid overspending and save money to repay the existing loans faster.
What about emergencies
Of course, emergencies are something we cannot predict.
But even during then, you have the choice of using the credit card or taking a payday loan.
By opting for online payday loans with no credit check, you can borrow the exact amount you require.
And the short repayment period will force you to stay alert and repay it on time.
Instead of stretching your debt over a few months or even years, you will be repaying it in less than a month.
This way, at least one debt would be off your shoulders.
You will also be able to better handle your finances during emergency situations.
Sanctioning the amount
After one submits the form, the service provider searches for a suitable lender from the same region. They compile a list of lenders who will give you money and send this to you.
You must go through this list and choose the one you prefer (the one with the lowest interest rates) and send your answer to them.
At this point, they check the validity of your answers before sanctioning the amount.
The money will get transferred to your bank account before the end of the day. This could take as much as one or two hours or even one day.
Borrowers can get the much-needed money inside a short time and spend it to get what they need.
The payday loans remain directed to those in the low-income category who cannot provide collateral for their loan. The poor and the young are the main targets of this loan scheme.
People most likely to take this loan include married, divorced, and disabled people.
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