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WHAT IS A PAYDAY LOAN?
One of the easiest types of loan you can obtain is a payday loan. A payday loan is a quick short-term loan whose principal is a portion of the borrower’s next paycheck. These loans are also termed check advance loans or cash advance loans. To get such a loan, the borrower must have a job or steady income, a bank account, and a personal identification. To receive cash, the borrower must write post-dated check for the loan and the lender’s fee of about $15 for every $100 on the loan; about 500% APR. Payday loan checks take about 14 days to mature and the fees are about $15 – $20 dollars on every $100 borrowed. The interest rates on these loans are usually high because the loans are small and mature in a short term. They have about 390 to 700 annual percentage rates.
If you urgently need cash, a payday loan is an option to consider since the application process is very simple and takes a few minutes.
Pay day lenders operate online and storefronts. They verify your income to determine if you are capable of repaying the loan. They also make additional verification on your bank account because the funds will be deposited in a verified bank account when your loan is approved. Assuming you have been granted a loan of $400 on the 18th of March, you will write a post-dated check of $475 to the lender dated 1st April because you have to repay the loan within two (2) weeks. $400 is for the loan and $75 for the interest on the loan.
The check serves as an assurance to the lender that you will pay back by the said date. One advantage of a payday loan is that, it doesn’t look into your credit history to grant you the loan; also, to the lenders, they are saved from the stress of chasing or pursuing you for their money – a win-win! The only requirement from the lender is that your paycheck should be automatically deposited into a verified bank. To ensure that the check will clear the account, it is set to coincide with the payroll deposit.
WHO ARE PAYDAY LENDERS?
Payday loan lenders are small credit merchants that offer onsite credit applications and approval online or with physical locations. Payday lenders target working people who need small loans due to emergencies. The lenders offer, deferred-deposit or post-dated check loans, cash-advance loans and check-advance loans. Payday lenders advertise on radio, televisions, mail and online.
Even though loans advertised are helpful for unforeseen occurrences, seven (7) out of ten (10) borrowers use the money for regular expenses such as utilities. Payday lenders rarely offer workable repayment plans to their borrowers and operate with very few regulations.
Why do people take payday loans?
Going in for a Payday loan might not be the best, but in emergency situations, they are very convenient and are easily obtained. In a situation where your tractor is off the road because it is broken down and you don’t have money to fix it, you can get a payday loan to fix it.
When the tractor is fixed, you can work and payback the loan you took. The lenders do not go thorough credit check on you to qualify you for the loan or check your probability of paying back the loan. This makes it very convenient for people with low credit.
THE NEGATIVITY ABOUT PAYDAY LOANS
Lenders usually give loans to individuals who have little or no resources to reimburse the loan. This is so because they fail to check their credit before issuing the loans to them. Borrowers are then compelled to take more loans to repay the older debt, putting them in more debt. They end up paying more interest than the amount they actually borrowed.
Relying on payday loans limits your expenditure, making you spend less than you need every month. In the end, you will likely find yourself behind on an entire paycheck. Though a payday loan will quickly solve your problem, they are not a permanent solution to the money you owe.
INTERESTS ON PAYDAY LOANS
Interests charged on Payday loans are enormously high with an APR range up to500%. In most states, usury laws have been set to limit interest charges on loans to about 35% or less. Payday lenders however fall under these exemptions, allowing them to charge high interest on loans. Note that the loan regulations are governed by individual states, but few states outlaw all payday loans. Also, borrowers should beware that payday loans only qualify for many state lending loopholes.
For example, if a lender charges a fee of 20% on a loan, you will pay an amount of $20 if you want to borrow $100. the lender can also charge a fee of $5 to run a database check on your account. Also, since a borrower is permitted to have only one outstanding payday loan at a time, the lender is able to detect and make sure the borrower has no payday loan. In addition to the fees, the lender charges an interest rate on loan.
The Loan Agreement
In a loan agreement, the lender must provide the following information
• The actual amount you borrowed
• All fees and interest charged
• Annual percentage rate
• A check receipt with the due date of the loan from the borrower, stating that the check will secure the loan.
• A contract stating that the lender will not deposit or present the check for payment till the due date which is at least twice the borrower’s pay cycle. The interest drops after the due date, not exceeding 6% per year.
• The right of the borrower to cancel the transaction any time before the close of business the following day by returning the amount received to the lender
• The borrower’s right to prepay the principal, fees, interest and charges due at any time. The lender must accept payment in increments as low as $5.
HOW TO GET A PAYDAY LOAN
To complete a loan application process, the borrower must
• Provide a paystub showing their current levels of income from their employer
• Bank account details
• Personal identification
Many payday lenders use the borrower’s income as a collateral. They usually put the principal on the loans on the borrower’s short-term income. You should therefore examine your current financial situation if you need a loan. This is a good way to budget properly and free up some money.
The reasons why people are trapped into payday loans are lack of savings and bad credit. Though payday loans trap you into a cycle of debt, making the effort to get out of it is worth it. Do your possible best to stop if you have been using payday loans. Instead make partial payments to settle your debts on the loans. this will bring the cycle of rolling over the loan to a halt and reduce your balance.
If possible, channel 80% of your money into paying off the loan. Instead of one installment, you can make payments on the loan in two installments if only the lender will allow. This is just to enable you pay off the debt earlier. Until you have paid off all your debt, put a stop to spending. Rather than taking out a new payday loan, it’s better to make it from paycheck to paycheck. If you find yourself already in debt, make conscious efforts to pay them on time.
Also, it will be difficult to repay incurring new debts, so do your possible best to avoid them. You can get a secured credit card, get an authorization to use another person’s credit card and take out an auto-loan from a co-signer to rebuild your credit from the scratch. The most convenient way of avoiding bad credit is to save or get a Credit Builder Loan.
WHAT IS A CREDIT BUILDER LOAN?
Credit builder loan is a loan taken out for the purpose of improving a score and establishing credit. They are specially designed for people with a bad credit or no credit score. They operate by giving loans whose proceeds are deposited into a savings account. The lender automatically drafts the monthly payments out of the savings account to make payments for the loan. Credit builder loans are offered by some credit unions, banks and some non-profit organizations. The loans offered are in small amounts with about 12 to 24 months terms and good interest rates.
Assuming you take a credit builder loan of $400 to fix your car due your bad credit. You will pay back the loan in 12 months and at a ten (10%) percent rate of interest. The proceeds of the loan will be deposited directly into a savings account in your name, but you cannot access the money. At the end of every month, the bank will withdraw the principal and interest. Credit builder loans help you develop a good on-time payment history and boost your credit score, though they prevent you from accessing your money.
The lenders constantly report your progress in your payment history is to the credit bureaus. This is done to counterbalance your bad credit history and increase your credit score. Moreover, you won’t have to go through the stress of making monthly payments. You just have to deposit sufficient money into your account that will cover the principal and interest for a year.
REASONS WHY YOU SHOULD AVOID PAYDAY LOANS
The easiest place to borrow money is from Short-Term Lenders. This is because getting the loans does not require any extensive paperwork like that credit card accounts and the banks. unlike other loans that usually do not include a right of recession, and you are unable to change your mind as soon as you sign the papers and collect the money, you can just walk into a store, write a check and sign some papers and get a payday loan.
The interest rate on payday loans are very high. Borrowers are charged about 28 to 36% APR on credit cards but the average APR on payday loans is very high, usually398%. They are expensive and must therefore be avoided.
Some Payday Lenders believe having rights to access Your bank account save you the stress of writing a post-dated check. However, when the loan is due, and the funds are not in your account, the lender can repeatedly make attempts to cash out the money and this usually results in $35 or more overdraft charges.
Most payday borrowers are unable to refund the loans they take in when it is due. They result to borrowing from other sources to pay back the loan or pay additional fees, and this rather sinks them into deeper debt.
Payday Lenders Can Be insensitive and cruel in collecting their debts so. They will disturb you day and night until they get their monies back.
WAYS TO OVERCOME LACK OF SAVINGS
In order to eliminate the need for payday loan, you must develop the habit of Self-funding. Note that the best way to achieve this is to have money in the bank. Instead of running to high-priced payday lenders when an emergency hits you, you will be able to rely on your savings.
The question now is, if you’ve never had enough money, how do you build up any savings?
There are a lot of people who find themselves in such situations, nevertheless opting for part-time jobs or a second job just for you to get additional source of income is a step in the right direction. In the long run, you will make enough money into your savings account to give you some aid in times of need.
Another excellent strategy to build your savings is to invest your income tax refund. Another good consideration you can make is to sell off anything you have but don’t need. For example, you can sell a couple of gadgets such as television set you no longer need to raise a few dollars. By doing this you will develop a habit of saving and have more money in your savings account for future use. This might not be the easiest, but it’s definitely a good strategy to boost your credit score and avoid the cycle of payday loans.
WAYS TO AVOID THE NEED OF A LOAN
One way to avoid the need for a payday loan is to plan and budget for your expenses ahead of time. Below is a guide to help you avoid the need of a payday loan in any situation.
• Make a list of all your needs
• Tick out all urgent needs
• Rule out those that are not urgent to cut down cost and improve your situation.
This strategy is a secure way to help you save enough cash to meet your current responsibilities and payoff old debts. It will also help you buy only what you need.
WAYS BY WHICH PAYDAY LOANS CAN RUIN YOUR CREDIT
The temptation to take a payday loan comes to play when you have no money or have a poor credit history. Nevertheless, you should know that though payday lenders don’t care or pay attention to your credit worthiness is not a guarantee that borrowing the money is a good initiative and not dangerous.
Postdated checks are issued on your next payday so if it bounces, you can go into default and end up in a hell of hedebt-collection. If you are unable to make payments for the loan on time or get or get a rollover due to financial constraint, you can be locked up in a problem with the lender.
First and foremost, the payday lender will attempt to collect the debt by repeatedly depositing your check or withdrawing money from your bank account. If the attempt fails and the lender is unable to cash out the money, it will result in added bank charges.
If the lender is unable to withdraw money or you close your checking account, the lender might have a law firm send letters to, call you at you at your inconvenience and sometimes have relatives and friends calling you.
The lender might propose a reimbursement for a lesser amount when all attempts to recover the loan fails and the borrower owes so much money. The lender will take this initiative to cut down the interest on your loan and not incur much loss.
It is most likely the lender will refer your case to a collection agency if the attempts to recover the money fails. In this situation, the borrower will first be disturbed with phone calls and later take you to court. if the judge rules against the borrower, it might end up up in your credit report. This will damage your credit rating and make it more difficult to get credit. If you had a bad credit, before taking the payday loan, the likelihood of getting any loan is very little.
If you know your loan check will bounce, it is advisable to notify the payday lender, and request a payment plan. This means the fees you might pay will increase, making repayment difficult. But this prevents major credit problems rather than destroying your credit score.
ALTERNATIVE WAYS OF BORROWING MONEY
Other options include;
• Borrowing the money, you need to pay back the loan from family or friends.
• Posting payment on a less pressing debt to free the funds.
• consider taking a cash advance to make the payment if you have a credit card
• Writing a check on an account with overdraft protection. Though the bank might place charges on it, it could be a better choice if you can raise the money to cover the bank charges.
PAYDAY LENDERS PREY ON THE POOR
You can get a payday loan at a pawn shop, payday loan stores, some banks and check-cashing places. These shops operate longer than a typical bank hour, giving you quick access to money, irrespective of the time. The lenders only require a check from the borrowers indicating the amount of a loan they are requesting for and the fee. The agreement is that the lender will only deposit the check when the borrower receives the next pay check.
The period for the loan is usually two weeks or less since people mostly receive their pay checks once every two weeks. As soon as the pay check comes in, borrower can let the check go through and pay in cash to the lender or allow the loan to roll over by paying more. When your check bounce, the payday lender can charge fees on the bounced check and also sue borrowers who write bad checks.
Payday lenders also don’t check the credit score of borrowers or report the activities of the borrowers to credit bureaus.
It is required by a payday borrower to earn at about $1,000 or more in a month and also provide
• A valid checking account number
• House address
• Social Security number
• Driver’s license
• A few pay stubs to verify pay dates, employment and wages
CHARACTERISTICS OF A PAYDAY BORROWER
A payday borrower is usually a
• A young high school graduate
• Does have a home of his own.
• Has children
• Has no access to any type of credit
• Relies on Social Security checks
• Has a limited credit availability and
• has filed for bankruptcy protection within five years
PAYDAY LENDERS PROMISE A DEBT CYCLE
Payday lenders usually advertise a price-per-$100 fee of about 15 to $20 for every $100 borrowed just to dodge the discussion on their triple-digit interest rates. At the end of every two weeks when the loan rolls over, there is an addition of a new fee and this increases the APR. below is the process involved in computing the APR for payday loans
• Divide the finance charge by the amount of the loan
• Multiply the results by the number of days in a year (365)
• Divide the results by the loan term which is usually 14 days
• Move the decimal to two places on your right right
• Add the percent sign
Many borrowers in the payday business are ignorant of the interest rates on their loans and rather focus on the fees on the loan. Customers are who focus on the fees alone prevents them from comparing APRs that the credit unions and banks may offer. Comparing APRs that the different shops have to offer is better than placing your focus on the fee. Customers end up using payday loans to settle utilities bills, rent and other monthly bills. The challenge in this is that by the time the loan is due, you will need money to pay the bills for the following month.
To keep up with the payment of the bills, users of payday loans are obliged to take out another loan to cover their loans. Payday borrowers’ function by taking new loans or paying a roll over fee for two weeks or more and this results in more debts.
Disclaimer: All loans offered through this website are subject to credit and underwriting approval. AfterLoans.ca is a lead referral company, not a lender. AfterLoans only works with financial service providers that adhere to Canadian laws and regulations. Our lenders lend from $500-$5,000. Loans amortization is between 6-36 months. APRs range from 19.99% to 55%. The actual APR charged will depend on the lender’s assessment of your credit profile. For example, on a $1000 loan borrowed for 12 months at 29.9%, the monthly payment will be $97.24; with a total repayment, including interest, of $1166.88 There is also lender’s optional loan protection policy. In the event of a missed payment an insufficient funds fee of around 45$ may be charged (dependent on the lender). If you default on your loan payment plan the lender may terminate the plan and the remaining balance will become payable immediately. Our lenders employ fair debt collection practices, but will pursue the payment of Outstanding debts to the full extent that Canadian law allows.