This week, David Lazarus of the Los Angeles Times wrote about the perils of applying for payday loans online. Though he brings up good points, many of the column’s positions on payday loans were blown out of proportion, and his attacks on the industry, while valid, only tell one side of the story.
But a media figure’s view on payday loans is often much different than the consumer who knows he or she must take out a loan to survive the month ahead. All sides can agree that payday loans are hardly ideal, but myths still surround short-term borrowing, often with negative connotations.
When separating fact from fiction, the devil is in the details, and potential borrowers can do well to learn the truths behind payday loans before being swayed by public opinion.
Myth 1: Borrowers end up paying astronomical interest rates.
“What we’re actually talking about is a sneaky way of pitching payday loans that can come with annual percentage rates as high as 700%,” writes Lazarus in his column. At face value, Lazarus is right: payday loan annual percentage rates, or APRs, do get into triple digits.
What he doesn’t tell readers is that the APR isn’t actually what the borrower pays, this is hypothetical amount of interest and fees the customer could expect to pay over the course of a year. But a payday lending study done by The Pew Foundation earlier this year revealed that the average payday loan length is 18 days, a far cry from the 365 needed to reach the actual APR.
In reality, the APR charged to a payday loan, while high, isn’t nearly as intimidating as the 700 percent Lazarus quotes. A survey conducted by the Colorado Uniform Consumer Credit Code (UCCC) recently revealed that the average payday loan amount in their state was $373. The average amount of interest (including charges and fees) was $276, making the average interest rate of payday loans 63 percent.
While much higher than credit card or traditional personal loan rates, 63 percent is much less than 700 percent.
Myth 2: Borrowers often take out new loans to pay old ones off.
A common belief is that two weeks simply isn’t enough time to pay off a loan. That one payday loan is usually paid with another one, and so on, ad infinitum, until the borrower is in a much worse financial position than he or she started in.
“The problem is that you’re borrowing against a future paycheck. When that check comes in, you may not have enough to pay off the loan or to cover new expenses,” writes Lazarus. “And so you take out another loan. Before you know it, you’re trapped in a perpetual cycle of high-interest payments.”
The only problem? It’s not always true. The UCCC study found that more than 76 percent of borrowers in the state paid off their payday loan in full within six months. With more than three-quarters of borrowers seeing their loans through from beginning to end, the myth of a perpetual debt cycle is exaggerated.
While the concept of a loan cycle is overstated, the danger of expanding debt is real. Borrowers should only take out one loan at a time, only as needed, and repay their loans before considering other short-term alternatives.
Myth 3: Communities would be better off without payday loans.
Of online payday lending, Lazarus writes: “These are eel-infested waters, and you don’t want to swim there.” In a perfect world, then, cities and towns across the U.S. would be free of payday lending and its exorbitant rates and fees.
But in payday loans’ place car title loans blossomed, a far worse product, one capable of repossessing personal property and putting borrowers in potentially worse financial situations. In fact, that’s just what happened: car titles in Virginia quickly became a thriving, $125-million-per-year industry that impounded nearly 9,000 cars in 2011.
The need for payday lending is clear only in relation to similar products, like car title loans, or penalties, like overdraft fees. In communities that don’t have access to payday lending, more consumers are forced to overdraw their bank accounts, while others must settle for late and altogether unpaid bills.
Payday loans should not be a consumer’s first borrowing option. But by comparing them to the alternatives – negative-balance bank accounts, late charges, shut-off utilities – they are a manageable solution when used properly. Payday lending isn’t a day at the beach, but it’s hardly the eel-infested swamp it’s made out to be.…
In the wake of the housing market collapse, the prospect of owning property became more affordable. However, consumers still need to ensure their finances are in top shape before they try to make the transition to homeownership.
One of the biggest purposes that borrowers obtain a check loan is so that they may cover a possible bounced check fee at their bank. However, if you pause and consider exactly what the NSF fees may add up to, you are facing an excessively high interest charge as well. For example, if you consider that your financial institution will charge you a $30 fee, in addition to a $20 charge courtesy of the retailer this is an entire cost of $50 just for a single check. Estimate that the check was for just $100. This totals up to a grand total of $150, however if you obtained a paycheck advance for $100, you should be giving back just $115. The interest charges for the NSF fees are higher than 1,251%! Talk about an enormous savings by receiving a payday advance, but if you merely start to consider the $15 charge that is standard for the $100 check loan, you could see how the amount would appear expensive.
For most people, a payday loan offers the opportunity to control their finances at a time when things are out of control. Because you are able to handle the payday loan in the manner that you see fit, it is possible to use the funds to cover bills, a car repair, a shopping spree or anything else. This gives you the freedom to use the money in the manner that you see fit, without any complications or hassles. If you really enjoy and appreciate the benefits that a payday loan can offer, you will quickly find that they are an amazing financial tool.It is important to remember too, when applying for payday advance loans, you do not have the embarrassment of having a bounced check, nor do you have the humiliation of not being able to cover your bills when they are due. You get the access you need to cash, and are able to keep your dignity without getting embarrassed and help you to ensure that you are able to cover debts when they are due, rather than getting stressed out about minor details.
The broad mass of citizens just do not possess the energy and assets to search about for all of the different cash loan companies in their neighborhood. Nor do they possess the time and resources to commute around to the bank fetching a copy of the bank acknowledgement. This together with the fact that most people are not capable to skip off from their job anytime they desire means that it is very essential to be certain you are looking for the easiest method to ask for a payday advance attainable. Generally speaking, the simplest manner of applying for a payday loan is the no fax payday loan. This is due to no requirement to commute around the neighborhood searching for required papers, there is no requirement to commute around the neighborhood looking for a place to apply, and there is further no requirement to drive around town to your bank to deposit the money. The obvious and clear certainty is a no fax cash loan can enable you to apply for the cash advance right from your home at the moment that is most appropriate for you.
Trying to save money on payday loans is something that can leave you extremely confused. Without enough time looking at all of the small details that can add up, you will quickly discover that the costs can get out of control. If you watch your budget carefully, you know that wasting money can happen really quickly. The same thing can happen with a payday loan, without watching the expenses carefully you will find that rather than helping your finances like you had intended, it is actually a drain on your budget.