Payday Loan Counseling
If you are here, you already know a payday loan is a small, short term loan with a extremely high cost, but you may not know that payday loan counseling can save you money, frustration, and time. The amount of the loan is typically less than $500 and the full amount is due in two weeks. Extensions are possible, if you are willing to pay an additional fee. These extensions can be repeated a number of times, which can lead to the greatest danger of all. Many borrowers can’t repay the loan with in the two weeks and find themselves caught in a cycle of debt.The Center For Responsible Lending reports that 99% of payday loans go to repat borrowers and the average loan is flipped eight times.
What Is The Real Cost of a Payday Loan?
Let’s say you wanted to borrow $100.You would give the company a check for that amount plus a fee-let’s say $115. You walk out with $100 but $115 is due in two weeks. The true cost of the loan ($15 on $100 for two weeks)is equal to an annual percentage rate of 390%! If you had to extend the loan for more than two months in order to repay it, you would pay more in fees than you borrowed.
In fact, you could pay much more than 390 percent. The Consumer Federation of America conducted a survey of Internet payday loan sites. It reported that “Internet payday lenders bypass state usury laws and consumer protections by locating in lax regulatory states” and the survey found finance charges in the 650 to 780 percent APR range.
How to Get Hooked on Payday Loans
Desperation and/or ignorance are the most common reasons people bite the payday loan hook. Typically, all you need id a job, some identification, and a checking account. The idea of quick cash is tempting to someone who doesn’t realize how much it will cost them or for someone who doesn’t think they have any other choice.
Payday Loan Counseling Offers Better Options
Even if you are financially strapped, there are better choices. Jim Blaine, chief executive of the non-profit North Carolina State Employees’ Credit Union, says “A loan shark only charges about 150 percent. Why would you go pay 4– percent? Any other choice on the planet is better.”(Source: Paying More For Payday Loans). The Federal Trade Commission (FTC) and several financial experts point out the following options:
- Ask your creditor for more time to pay your bills. Ask to speak with a manager, briefly explain your situation and state what you can pay now or how much time you need. If no assistance is offered, find out what the late or penalty charges would be-that still may cost less than 390% APR.
- Ask for a payroll advance from your employer. Because this is not a loan, there is no interest.
- Ask family or friends for a small private loan. If they have the funds in a savings account and you offer them a higher interest rate, it can be a win/win situation. Remember to put all terms in writing.
- Look into a small loan from a credit union or small loan company.
- Look into a cash advance on a credit card.
- Look into overdraft protection on your checking account.
- Make a realistic budget or spending plan.This can help you free up money by dropping expenses that are not absolutely necessary or making other adjustments to your current spending. It can also help you build some savings so that you will be better prepared for financial emergencies.
- Look into emergency assistance programs. Many faith-based groups and community organizations will provide emergency assistance directly or through social service programs.
- Consult your local credit counseling service. There are non-profit organizations in every state that offer credit education and debt management programs.
Compare the Annual Percentage Rate (APR), including the finance charges and all fees, to find the lowest total cost.
If You Have Taken A Bite
- Get the facts. The Consumer Federation of America has created an online resource of information regarding payday lending. Here you can find specific information for your state about the legal status of payday loans, loan terms, collection limits, complaint instructions, and more.
- Contact the payday loan company. Explain your situation to a manager and try to negotiate a reasonable payment arrangement. Also, careful re-read the terms of the agreement you signed. Are there arbitration terms? Calculate how much it will cost if the check bounces. In the long run, these costs might actually be less than the cost of renewal/extension fees.
- Look over the list of “Better Options” to see if using one or more of those solutions can help you pay back the payday loan.
- File appropriate complaints. If you believe the lender violated the Truth in Lending Act, contact the FTC. If you believe you were wronged or misled, contact your state attorney general.