Instant Payday Loan
Payday loans are often referenced by flattering names as EZ Payday Cash, Overnight Payday loans, Instant Cash Advance Loans and such other deceitful platitudes. While advertisings of this form of money-lending scream out their apparent philanthropic leanings, they are in essence malacious rip-offs. Albeit instant, payday loans are expensive and exploitative.
Often suited for those who live from paycheck to paycheck, such loans help tide over an exigent financial situation that arrive unannounced. In the absence of emergency fund to offset an unforeseen expense consumers are very often found to walk into this malicious web that proves their future undoing. Howsoever instant, a payday loan contrary to popular perception does not herald any financial relief but casts a burden that piles up gradually until it completely overwhelms its consumer with debts. This is a predatory lending business that operates in a sneaky, surreptitious way under the cover of flashy and beguiling names.
So what are payday loans:
Payday loans are short term loans offered at extremely high interest rates. The lenders give the desired amount as loan to his client in exchange of a personal check which is payable to the lender for the amount of borrowed money, tagged with a fee. Alternatively, the customer authorizes the lender for an electronic withdrawal of the loan amount from his checking account on the date on which it is due. If the customer finds the loan as impossible to repay he can "roll it over" so that the loan is extended. While extending the loan temporarily relieves the customer, the fees keep accumulating.
Common targets:
Payday lenders target
• Young, impressionable minds with little or no experience of finance
• Consumers neck-deep in debt
• Poor wage earners or those that are struggling to make ends meet
• People with poor credit standing
• Those that have a history of using high-risk lenders
Workings of a payday loan:
Typically a Payday loan is requested for a short period of time say, one to four weeks. The client must show proof of employment and identification and write a postdated check that reflects the amount borrowed and the fees for the transaction, which is left with the lender. The lender agrees to hold the check until next payday or other agreed-upon date in the very near future. When the date arrives the customer can either meet his loan obligation through redemption of the check by paying back in cash, or the lender deposits the customer's undersigned check to recover the loan. If the loan appears insurmountable to the borrower he can roll over the loan for a fee for another two weeks. In addition to fees, any check-bounce penalizing charged by the bank must be covered by the borrower.
The liability of extreme fees in payday loans:
Fees charged for Payday loans are typically a percentage of the amount borrowed. There is a charge slapped for every $100 borrowed. Upon extending the loan, one pays additional fees every time the "roll over" is in effect. Studies have revealed that interest rates on payday loans could range from 390% to nearly 900% and that in most cases the lender does not cough out the exact interest terms for the loan.
Supposing a person borrows $300 until his next paycheck then his obligation towards fees is most likely to be in the neighborhood of $45. In this example the cost of the initial loan is $45 for two weeks which is equivalent to, $1,170 a year, or an APR (annual percentage rate) of 390%.
The cash advance loan is a very expensive method of borrowing short-term credit. The borrowers in most cases do not end up in any better shape than with what they started off. They often wind up in renewing the loan month after month thereby paying grossly inflated annual percentage rates or accumulating fees which leave them debt-struck and in still poorer circumstances. It is a vicious cycle of debts and further debts that impoverishes the borrower but keeps the lender happy
What borrowers can do to avoid a debt trap:
1.Avoid renewing your Payday loans if you fall short of repaying the original loan. To take out one payday loan to diminish another payday debt will burn a bigger hole in your pocket.
2.Glimpse carefully through the contract of your loan including the fine print. Check if you signed a voluntary wage assignment clause. This will authorize the payday lender for wage garnishments and draw money directly from your paycheck to pay off the loan. If your agreement contains such a clause, write a letter to the lender to revoke that agreement.
3.Talk to your lender about extending the loan payment terms. Even though the odds are stacked against you an arrangement whereby the loan term can be lengthened could be worked out. Besides in some states there is legal sanction for extended payment terms to borrowers. An avaricious, misleading lender might refuse your plea and suggest drawing another payday loan but be cautious! If need be seek help from your states Department of Financial Institutions for help.
4.Avoid check bounces. Check bounces occur from insufficient funds in account. Every time, the check you wrote to secure the payday loan, is returned for dearth of adequate funds you will incur additional charges as penalty from your bank. This in effect can raise the overall cost of your loan. In case of the lender being authorized to withdraw funds electronically and there is lack of funds have the authorization revoked or contact your bank to order a stop-payment on the withdrawal.
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