Same Day Payday Loan
Like all other loans, PayDay loans too, have some risks and some benefits. A payday loan is a short-term loan which helps you manage until the paycheck comes in. It saves you from pawning personal property or borrowing money from family or friends. These loans can be acquired within 24 hours of applying, if you provide the lender all the information he has asked for.
PayDay Loans are also called deferred presentments, cash advances, deferred deposits or check loans.
How the loans are handed over:
The loan amount is electronically deposited into your checking account, details of which you give to the lender while applying for the loan. There are three options for loan repayment:- a) You can pay the full loan amount and the finance fees.
b) You can pay the finance fees and partial amount of the loan taken.
c)You can pay only the finance fees and extend or renew the loan to the next payday date.
These loans are mostly taken by those earning less than $50,000 per year, the uneducated black community, military personnel or those with a small but fixed income. It is now being seriously considered to put a cap or limit on the annual percentage rate of payday loans for military-men. The limit might be set at 36 percent. This is because many military personnel have low credit ratings when they do not pay back these loans on time. The low credit rating in turn, causes the soldiers to get their security clearance pulled or not clear the security clearance. Without the security clearance, the soldiers cannot be deployed to the battlefield. Paul Leonard, Centre for responsible lending said, We are at a time of war and payday lending is threatening readiness of our troops.In fact, one of the changes in the FY 2007 Military Authorization Act makes it illegal for creditors to give payday loans and car title loans to military members. The change also prohibits charging more than 36 percent interest to military borrowers. The law will affect the payday loan operations around military bases.
Payday loans are handy for sudden needs like cashing a check on a Sunday or cover an unexpected expense. The average cost of Payday loans is $25 for every 100 dollars loaned. In another incidence, the Missouri State governor, Matt Blunt announced on 13th September 2006 that the nursing homes administrations will not be allowed to give payday loans to its employees. This decision was made as the employees have been charged as high as 60 percent on their advance payments.
The number of states with Payday Loans is increasing, as the Payday Loan market is rapidly spreading. Many older Americans have difficulty in meeting their monthly expenses. Fixed incomes are not always enough to meet a senior's needs. This is so mainly when unexpected needs arise, related with medical problems, home and car repairs or even an old refrigerator that has broken down. Unluckily, there are very few ways by which isolated seniors can get through such trying times. They find it hard to get small loans at reasonable rates. As a result, many senior citizens end up taking high-cost small loans including payday loans.
The procedure of taking a Payday Loan goes like this;
The customer writes a check to the lender. The amount on the check is equal to the amount borrowed plus a fee that is either a percentage of the full amount of the check or a flat dollar amount. Some Payday Lenders offer "automatic debit" agreement. Customers who sign this agreement, give permission to the lender to automatically debit the customer's account at a future date.
With growing awareness about the risks and exploitation through Payday Loans, now there are numerous laws that can be studied and used to safeguard oneself against Payday Loan threatening etc. More information on these laws can be found in the National Consumer Law Center's manual, The Cost of Credit; Regulation and Legal Challenges and NCLC's handbook, Stop Predatory Lending: A Guide For Legal Advocates (2002). For information on ordering NCLC publications you can call 617-542-9595 or visit the website www.consumerlaw.org.
In July 2003, Consumers Union helped defeat in Texas a payday loan industry loan proposal that would have worsened an already tough situation for borrowers. The proposed law would have licensed Payday Lenders and allowed them to charge rates of more than 900 percent APR!!
Similar legislation allowing payday lenders to charge higher rates has been introduced around the United States and adopted in some states, most recently in Oklahoma.
According to the Consumers Union survey, none of the 31 lenders in Austin, Dallas, Lubbock, Fort Worth, Houson, San Antonio were even close to meeting the current standard of percentage rates or fee caps set out in Texas regulations. The survey was based on a typical loan of $200 to be paid back over 14 days. Lenders charged from $35 to $68 for this loan, which equals 450 to 880 percent APR!! Under Texas law, the maximum charge allowed for such a loan would be $13.73 which equals 178 percent APR.
Lenders also did wrong practice in many instances of Texas law by allowing unlimited renewals of the loan as long as a renewal fee was paid. Under State law, loan renewals are allowed after the first renewal if the loan balance declines with each payment. Of all the companies surveyed, only one company did not allow renewals and two others mentioned requiring a declining or reducing loan balance as a condition for loan renewal on the fifth renewal.
In another study, in Iowa, consumers generally roll over a payday loan 12 times before paying it off, completely. In reality, many families that live from paycheck-to-paycheck, end up paying hundreds of dollars they can not afford in fees to keep these loans afloat or renewed. Not paying them would mean that their checks would bounce and their financial condition would become even worse. Also, many other aspects of Payday Loans were discovered during the study.
• The "working poor" including the social security dependent elderly-- are targeted by some payday lenders inspite of their limited ability to meet loan terms and chances of being trapped into an endless cycle of debt.
• Only four of the 31 lenders surveyed were found to be licensed by the Office of Consumers Credit Commissioner(OCCC). This is inspite of the fact that every payday lender is required to licensed by the State law.
• Some lenders continue to fake themselves as operating in some other business. For example, two lenders among those surveyed, offered "internet service" in return for a "cash rebate" as a new cover for the payday loan services!
The report says : "Payday lenders argue that their
excessive rates are justified as they do not conduct credit checks". However, it can be noticed that the income verifications done by them, combined with electronic funds transfer agreements, confirm that the borrower has a steady flow of cash available directly to the lender-- meaning, a credit check.
Now, the Consumers Union advises the consumers to avoid Payday Loans and seek alternatives. Some of the alternatives suggested are:-
• take small loans from credit unions or take cash advance on a credit card.
• make a pawn loan, using an unrequired item as a collateral.
• seek out a signature loan. It is an unsecured loan and extensive, but much less costly than a Payday loan and usually widely available, even to those with a poor credit score.
Other Articles
