The payday loan industry – How consumers should steer clear of payday loan debt
Within the consumer finance industry, there are chameleons called the payday loan lenders. They’re the ones who alter their lending practices and shift their products to work around state laws and in this process they come up with short term loans that carry interest rates exceeding 300%. Such illegal practices by the roughly $46 billion payday loan lending industry have already frustrated the efforts to protect and safeguard the consumers. Currently, for the first time, a federal regulator is entering the industry, thereby drafting regulations which could drastically reduce the number of unaffordable loans that are crafted by the payday loan lenders.
The Consumer Financial Protection Bureau, which was created after the financial crisis in 2008 is about to release the first draft of government regulations to govern a bigger range of short term loans. The new rules are predicted to address expensive loans that are backed by car titles and some other installments loans that stretch longer than 2-week payday loan, as per industry lawyers. Certain installment loans with interest rates that surpass 36% will also be most probably be covered by the rules.
Payday loans – What you need to know about them
Payday loans are costly way of borrowing money. Most of us fall short of cash during the middle of the month or at the end of the month and this is when such short term loans or payday loans are taken out to take care of your mid-month financial contingencies. Usually such payday loans carry outrageously high interest rates and this is why there are an increasingly large number of people who are struggling to repay their payday loan debt. One should never take out a payday loan unless he is sure that he can 100% repay the loan on time as failure to repay on time leads to the crisis.
How do payday loans work?
Payday loans are short term loans that are specially designed to help people who are suffering from cash problems until their payday. The lenders will straightaway send the money into your bank account. Normally, you have time until your payday to repay your loan plus interest, although there are some other payday loan lenders who will allow you to choose a repayment plan according to your convenience. On the exact repayment date, the lender will take back the full amount that you owe him including the interest rate directly from your bank account. This will inevitably happen even when you need the money to pay off your essential bills including rent, mortgage, food and heating. Always keep in mind that a payday loan will worsen your situation when you can’t afford to repay it on time. Inability to repay loans will also affect your ability to receive credit in the near future.
Why should you take resort to payday loans?
Among all the loans that are available in the market, why should you be taking resort to the payday loans? Despite knowing that these are short term loans that needs to be repaid on time, why do people still prefer them? They prefer such loans because:
- Most lenders offer cash within 24 hours and hence you get the money into your bank account within a single day
- Lenders don’t even check your credit history or credit limit while lending you a payday loan. Lenders may only verify your bank statement, income and your employment status.
- Lenders will lend you money without asking a single question. In fact now the online credit companies will offer you cash even without you requiring to travel.
Payday loan mistakes that you got to avoid
Although payday loans are convenient ways to get cash whenever you want, when you don’t use these options wisely, it could lead to financial ruin. Here are some mistakes to avoid.
- Not knowing whether you can repay: As the rates of interests on these loans are pretty high, you should be sure about your repayment ability before taking out the loan. If you don’t repay on time, the interest rate will keep accumulating and this will lead to a huge financial wreck.
- Taking out a payday loan to repay another one: This is a big blunder that is sometimes created by most borrowers. When they’re not able to repay one loan, they make the mistake of taking out yet another loan to repay the previous one. This leads to a payday loan debt mess that becomes tough to get out from.
- Not researching: Make a comprehensive market research of the rates that are being offered by other lenders before settling with a new one.
Therefore, when you’re wondering about the ways in which you can repay your payday loan debt, you can take help of the debt consolidation companies. However, ensure that you go through the sovereign funding debt consolidation reviews before selecting a company.