The Pitfalls of Payday Loans Every Borrower Should Know

Payday loans are credit facilities that are designed to be advanced for short time frames. The concept of ‘Payday Loans’ is not a new one, especially if you live in the western part of the world. There are numerous debtors who prefer to avail this facility and borrow money during exigencies, preferably repayable by the forthcoming payday. But is the picture so rosy? Like all other private lenders, payday loans also have some hidden facts and dubious lending practices that can easily trap a gullible borrower.

Here is a list of unfair practices that your payday lender will never reveal.

Exorbitant interest rates

Payday loans are available under the cloak of easier lending terms, quicker processing, flexible repayment terms and waiver of credit checks. However, all such good things also carry an interest cost in the form of ‘Annual Percentage Rate’. This interest rate can extend up 700 percentile of the loan amount and increase the financial liabilities of a borrower.

A borrower should crosscheck and compare the interest rates between various lenders and negotiate for lower rates of interest before accepting the loan offer straight away.

Loan rollover charges

Payday lenders offer a rollover of the payday loans, when borrowers fail to repay debts in time. However, a borrower fails to understand that this helpful tendency has rollover costs attached to it, which is enough to squeeze blood out of the body. The borrowers fail to realize the increase in liabilities when they are mesmerized by the sweet words of the lenders.

Trap of multiple loans

In several instances, a borrower fails to project the exact cash requirement and ends up borrowing lesser money. When the borrower approaches a payday lender for add-on credit facility, he also pays excess lending charges for the increased loan value. This extra fee is added in small letters in the loan contract papers which borrowers fail to read.

Check bouncing penalty

A payday lender can charge hefty penal charges during instances of check bounce or rejection of auto debit transactions. This penalty might extend to a quarter of the outstanding loan amount.

Apart from this, all payday loan agreements contain a clause permitting the lender to initiate legal action upon non-repayment of instalment within a week of check bounce. The penal charges combined with debt can even sum up to twice the loan amount and trap the borrower in a vicious circle of financial and legal problems. Thus, a borrower should ensure that sufficient funds are available in his repayment account on the installment day.

Corporal presence of the payday lenders

Not all payday companies have their physical presence in the area of operation. Most of them are either shell corporates which cover up their individuality with false business labels or offshore corporates which have their registered offices at tribal lands or places like Costa Rica etc. Such entities are exempt from all federal regulations and hence, it is highly challenging for the borrower to sue the lender on charges of illegal practices.

A borrower should ensure that his payday lender has a corporate office near his place of residence or at least in the same country. He should utter cautious about outstation lenders or online lenders with no specific contact details. The registered lenders might undertake certain identity and credit checks, but they are governed by the state regulations. This can be beneficial to the borrower by providing lower interest rates and other related fees.

The Office of Fair Trading has also taken stringent action in 2013 and several lenders have either shut down or withdrawn their lending business. However, a borrower should also exercise caution while availing a payday loan, whether it is online or store front office.

Aparna is a freelance writer who loves to write on her niche areas of health and fitness, business, start-up management, pets, family and relationship, career, human resources, home improvement, gardening and travel. She is a Chartered Financial Analyst and a legal professional with a decade of corporate experience. She writes for several corporate magazines and websites. You can approach her for various freelance writing assignments.

PayDay Loans – The Facts

As the credit crunch starts to bite in the UK with Fuel and food costs rising more and more people are finding that a small emergency such as their car breaking down can leave them short of money until they get paid. Payday Loans are becoming more and more popular for short term borrowing to get over these emergencies.

What is a Payday Loan?

When times are tight Payday Loans are a very simple and hassle free way to get a short term loan until you get paid. They are recommended to be used for short term emergency borrowing . As an example, if you have to travel to work by car due to public transport not being an option. You have a break down and you can’t get to work, catch 22, no car, no work therefore loss of pay – a viscous circle. A Payday Loan may be the answer. You can apply and get the money the same day paid into your bank account.

How do payday loans work?

Very simple. Using a simple on line form on the you can apply in five minutes. There are no credit checks and you can have the money the same day. The requirements are:-

You must be over the age of 18
Your monthly earnings must be over £750 per month and you must be in full time employment
You have to have a Bank account with a debit card, the debit card is used to recoup the loan once you have been paid

Who can get a Payday Loan?

You are likely to qualify if you are over 18, in full time employment and your earnings are over £750. You will also have to have a bank account and debit card.

What information do have to supply?

Generally the simple on line form requires the following information:

Your basic details such as name and address Your date of birth Your contact telephone numbers and email Your work and salary details Your bank account and debit card details

Why do the Loan Companies need all this information?

All Loan Companies have to act in a responsible manner and they need this information to verify:

That it is you taking out the loan and not someone else using your name
That you are in full time employment and able to repay the loan, if not in full time employment they will not give you the Loan
That they put the money in your account and no-one else’s account
That you can repay them in a simple and hassle-free way by using your Debit card details.

How long does it take?

5 Minutes, literally. All you need to do is fill in a simple on line form. The Loan company will generally give you an instant decision once you have completed their simple on line form. Once approved the money will be deposited into your account the same day. Please note with some banks it may take 1-3 days for the money to clear.

How much can you Borrow?

Most Payday Loan companies will allow you to borrow from £80 to £750 depending on your circumstances such as your monthly salary. The table below shows the costs of Payday Loans:-

Amount Borrowed Amount you repay

£80 £100

£100 £125

£200 £250

£300 £375

£400 £500

£500 £625

£600 £750

£750 £937.50

If you look at the Typical APR of 1845% this sounds horrendous so lets have a look at some comparisons of other forms of lending.

Type of Loan Amount Months Total repayment APR Actual Interest

Installment £500 36 £745 16.9% 49%

Installment £500 60 £970 16.9% 94%

Payday Loan £500 1 £625 1845% 25%

So now you can see the difference. The longer term loans seem to have much lower interest rates (APR) but in reality you will end up paying a lot more back then you borrowed in comparison to a Payday loan, this is why payday loan companies always focus on the actual amount you will pay back not the Interest rate. Personally I think that if I needed to borrow money for an emergency I would prefer a payday Loan to a normal long term loan as it will be cleared the next time I get paid.

How easy is it to pay back my Loan?

Very Easy – the agreed repayment amount would be debited by the Loan company from the debit card that you registered on the on line form on your next payday – there’s nothing else for you to do.

Can I defer my payment?

Yes – although after deferring the payday loan twice they will ask you to start reducing the balance. Deferral will incur new charges for every month the loan is deferred – but still at our fixed rate – there are no additional charges.

What happens if your bank account details or the day you get paid changes?

If your payday has changed, or you have a new debit card, just contact the customer services department and they will change your details straight away.

What if I have problems paying?

Payday Loan companies understand that people’s circumstances can change. If this is the case, you must let them know as soon as possible and they will always do their best to help.

The most important things to note are:

Do not get a Payday Loan if you are unsure that you will be able to pay it back when you get paid.
If you are having difficulties then contact the Loan company as soon as possible. Do not bury your head in the sand and hope it goes away.

Installment Loans Vs Payday Loans

Many times when people get into a financial bind they look into acquiring a payday loan as a quick fix. What a lot of people don’t realize is that this can oftentimes create even more of an issue for themselves than they were ever even in to begin with. You must be very careful with taking out a loan and make sure you completely understand all the fine print and obligations or you may get in a situation that can be hard to dig yourself out of.

First off, let’s go into a payday loan and define what exactly this is. One common definition of this would be a loan that is obtained under the agreement that it will be paid off within a term between 14 days and no longer than 31 days. Another popular definition that is commonly used would be a loan where a postdated check is used to secure it. This check is usually dated between 14 and 31 days ahead of the date the loan is obtained. So basically, it must be paid off in a very short amount of time from taking out the loan to begin with.

People from across the country get into serious financial trouble when they acquire a payday loan. Too often, a lump sum payment just isn’t feasible for people in need of a financial help, but they still acquire a payday loan when they should be taking advantage of smaller payments over a longer period of time. Taking up to a year to pay off a loan is much easier than attempting to pay off their loan in the allotted time span of 2 weeks to 31 days like a payday loan normally does.

Most of the time a payday loan is a small amount of money with large interest and fees. It is also an extremely short loan which is required to be paid back in what is mostly seen as an unrealistic amount of time. This can oftentimes cause the person who took out the loan to have to extend the term with the lender which causes even higher interest and additional fees. Many lenders are taking advantage of those who are in desperate situations and willing to do whatever it takes at the time to get some extra cash early.

An installment loan is a loan that is made with or without collateral where the borrower makes consistent payment amounts throughout the term of the loan. The amount borrowed plus costs are divided by a number of equal payments making the payments a fraction of the amount owed but paying the complete amount owed by the last scheduled payment.

An installment loan is a much more realistic and safe type of of loan to take out. It’s safer because of the fact that it is more realistic. Paying the money back over a period of time makes it’s a lot easier than trying to pay it all back at once. If it would be so easy for a person to pay back that amount of money in such a short amount of time, than they probably wouldn’t have needed the Payday loan to begin with.

Scheduling your loan payments over an extended period of time allows you to plan out and prepare for paying off your loan successfully.

If you are ever in need of acquiring a loan, it is crucial that you are realistic about paying your loan off. Be sure that you read the fine print and choose the loan that is right for you. An installment loan is a much safer and more realistic way of paying of your loan efficiently.

Limit Your Use To Make Payments More Affordable

Applying for payday loans to help with budget failures can often lead to overuse. It is never good practice for a borrower to owe money to several payday loan lenders all at the same time. Between the finance charges and the balances due for each of the loans, your next few paychecks will carry a heavy burden.

Credit challenged applicants need to understand that there is a clear difference between owing money to creditors and short-term lenders. A direct lender is not in the revolving account business and unless you deal with a lender who processes installment payday loans, your payment is expected in full including fees by the time you get your next paycheck. With every other household bill and payments to every creditor how much money will you have left? Too often credit challenged folks turn to the short-term loan lenders for food and gas money or to recoup from paying another safe payday loan off. This is a tough cycle to get out of. You have to make on-time payments, so how do you ever get out from under the carpet of debt? One thing for certain is that you cannot get out of debt while still making debt. You have to take a stand against using any more credit cards or fast cash loans to make ends meet.

Minimum payments will not get rid of debt any time soon. All it will do is continue to drain your bank account while you dish out finance charges with every payment. It is important to focus on the one loan that costs the most and knock it out of your budget portfolio. It makes the most sense to get rid of high interest rate debt first. This will often point to paying payday loan lenders in storefronts or online first. You may have creditors that charge similar or possibly higher rates, but the short terms on a payday loan make finance charges happen more often. Minimum payments break the bank one small payment at a time. You can’t blame financial woes only on the debt.

Creditors will send you a bank statement. Do you open it or place it on the desk to take care of another day? Do you answer the calls from a direct lender? Chances are that they may call you to remind you of your upcoming due date. Unless you have not paid the bill, you don’t have anything to avoid. If you have missed the due date or your payment was returned insufficient funds, it is good to accept their call or read any communications they send. It is always best to make arrangements with the company directly. The last thing you want is debt in default. There will come a point that a borrower’s debt will get sold off to collections. You know those companies that call and send countless emails and letters trying to collect on your debt. Collections agencies are no fun to deal with never mind the damage default debt will do to your credit report. When you get a call from your creditor or direct payday loan lender accept it and work something out. It is much better for you in the long run.

Don’t use third party money for the wrong reasons. Extending your purchasing power is not a good enough reason to add debt to you plate. Make sure to leave these options for those emergency moments when unplanned expenses interfere with your budgeted plan. Multiple payments end up not being as convenient as spending the cash in the first place. Think it through and make the smart decision for your budget.

A Quick Look Into Payday Loans

Payday Loan: Definition

A payday loan is a short-term loan that can help you cover your unforeseen expenses. A quick financial withdrawal is given based on your future paycheck. People prefer taking payday loans with higher interest rates rather than going to pawn shops. Payday loans also referred to as fast cash advance are readily available and do not require you to go through any lengthy applications.

When To Opt For Payday Loans?

Financially demanding situation:

It might happen that you are stuck in a financial emergency where you cannot wait until your payday. So what do you do? Given the technological advancement, you can simply log on to an online finance site that provides fast cash advances.

By filling a form providing your name, address, employer and bank account details, you can have your loan approved in a matter of few minutes and your cash advance is deposited in your account within 24 hours. Alternatively, you can also visit a cash advance outlet in your vicinity and apply for loan in person. These loans are offered on an interest rate and are to be repaid by the borrower on his/her next pay day. One simply has to write a check for the borrowed amount that can be en-cashed by the lender on the day of your paycheck.

Bankruptcy

If you have recently declared bankruptcy, it can affect your credit rating and create problems with loan approval. You also cannot apply for a bank loan for the next seven years as the lender can find out that you have filed for bankruptcy. Well, here is where a cash loan can come to your rescue since there are no credit checks on payday loans! You only need to give guarantee that you will pay back your loan on time and that you have a job that allows you to do so.

The Big Question: To Keep or Not to Keep

Ever since the number of payday loan lenders and the popularity of such loans have sky rocketed, the public along with the government is debating on the pros and cons of cash advances.

To Keep

The working class in any country is the backbone of its economy. And most often than not, it is this working class that needs financial help from time to time. For emergency requirements, a payday loan is the greatest help a government can provide its people. These loans have become so important to many in the working class.

If payday loans are banned, it can put many people in a financial mess. There are people with bad credit history and also those who have filed for bankruptcy. For people in financial soup, short-term loans are the sole means of instant financial relief.

Moreover, ever since the government has made reforms and revisions in the direct payday loans practice, it has become difficult for the moneylenders to filch huge amounts from customers. There are laws as well that that protect the borrower from the vicious circle of long term debt.

Not To Keep

Despite the easy-to-borrow facets of the payday loan, it can land you in a big debt trap. There are some lenders who charge you a very high interest rate and even higher if you are unable to make payments on time.

Although the government has made reforms under which the borrowers are protected from debt traps, yet the lenders have found ways of working around these laws. For example, the Payday Loan Reform Act protects you only from direct interests and not from installment payday loan interests. A consumer gets no protection under the latter, which seems more attractive since you can pay off your borrowed amount in installments albeit at a greater interest rate.

Conclusion

The best way to decide whether to opt for these loans or not depends on the situation you are in. A likely choice to escape this dreaded potential trap would be to keep your expenses in control and save for a rainy day to meet all your unexpected costs.