Ask The Money Coach

Posts Tagged ‘payday lenders’

Arkansas Attorney General Sues Operators of 6 Online Payday Lenders

Arkansas Attorney General Dustin McDaniel filed a consumer protection lawsuit against a Missouri man and two companies that control six payday loan websites offering loans to Arkansas consumers at interest rates that exceeded 600 percent.

The lenders known to be controlled by the defendants include: Action Payday, Bottom Dollar Payday, Everest Cash Advance, Paradise Cash Advance, Red Leaf Lending and The VIP Loan Shop. Continue reading “Arkansas Attorney General Sues Operators of 6 Online Payday Lenders” »

How Can I Get Rid of My PayDay Loans

Author: The Money Coach

Q: What advice do you give to tackle payday loans? I Have Two at the Moment and I Can Not Afford to Pay Them Both at the Same Time. What Do You Suggest?

A: Unfortunately, millions of people get caught up in the cycle of payday loans each year — not realizing that many of these loans, when rolled over, carry annual interest rates of about 400%, making them nearly impossible to pay off. I’ve written extensively about the dangers of getting payday loans and alternatives to them. Read this post for some of my tips for raising cash when you’re in a financial pinch.

I also recommend taking a look at an excellent five-part series on payday loans, written in 2010 by a terrific financial reporter, Pallavi Gogoi, for DailyFinance.com, an Aol Money and Finance site. Gogoi examines the growth of payday loans, she explains why even federal regulators haven’t been able to protect the public from payday lenders, and offers some good advice for help and alternatives for people with payday loans. Read that series on payday loans, and it’s sure to be an eye-opener, as well as helpful to your specific predicament.

What are the Dangers of Getting Payday Loans?

Author: The Money Coach

For a single loan, payday lenders routinely charge interest rates of about 400% on an annualized basis. That’s a ridiculously high price to pay for “credit.” So why would someone willingly go to a payday lender when they’re short on cash, when they could just use a credit card to pay for something, or even take a cash advance from a credit card?

There are numerous causes, not the least of which is a lack of basic banking services in many communities where payday lenders thrive. Also, many payday loan clients had previous credit problems, or couldn’t qualify for a regular credit card. But there is another, more basic issue at play too: Many of these consumers out of the credit mainstream either do not want to or do not have the financial skills to play by the credit card industry’s rules.

Payday Loans Often Turn Into a Vicious, Expensive Cycle

Needless to say, one of the obvious rules is: you must repay what you owe – or at least repay a minimum payment – by your due date. But guess what? The payday lenders actually don’t have that rule, at least not as a hard and fast requirement. They’ll let you slide by allowing you to “roll over” your payday loan. This way, you can put off paying back what you initially owed. Can you guess why they have such “flexible” rules? If you think they’re doing it out of the kindness of their hearts, think again. It’s because “roll over” loans impose hefty fees, making them enormously profitable for payday lenders. The average payday loan customer that uses “roll overs” winds up paying over 1,000% in interest, according to a study by Georgetown University researchers. Unfortunately, the average person who gets a payday loan typically rolls them over, getting an average of 1 payday loan per month, or 12 in a year. So if you ask me: a payday loan is one super-expensive form of “credit” you should never accept.

Payday Lenders Get Creative To Evade The Law

By the way, payday lenders are getting sneakier than ever. In the wake of tough laws clamping down on them, many payday lenders are starting to offer what they call “installment” loans. These are still essentially payday loans. But the loans are merely stretched out over longer periods of time, in order to help payday lenders bypass various state regulations governing short-term loans. For example, in December 2005, the state of Illinois adopted the Payday Loan Reform Act (PRLA), a law that regulates loans of 120 days or less. So what did payday lenders do after that law was passed? To get around a host of loan restrictions and consumer protections offered by the PRLA, many Illinois payday lenders began offering look-alike “installment” loans of 121 days or more. Needless to say, the net effect of these so-called “installment” loans is the same as with traditional payday loans: the consumer ends up in an expensive, long term cycle of debt. In fact, according to the Woodstock Institute, which conducted a comprehensive analysis of two of the largest payday lenders in Illinois, these high-cost installment loans are even more expensive to consumers than traditional payday loans.

How Many Americans Have No Credit or No Checking Account?

Author: The Money Coach

There are roughly 50 million adults in the United States who operate outside the credit mainstream. They have no credit file whatsoever. Many never had a credit card; never took out a mortgage; never had a student loan; never paid a car note. Nothing. Granted, a lot of these individuals are potential newbies to the credit world – maybe they’re students, widows, recent immigrants, and so on. For whatever reason, they’ve not gotten around to even applying yet for credit. However, a sizeable portion of these people have also consciously chosen not to participate in the credit system.

Some People Consider Credit Poison

Some will proudly tell you: “I’ve never had a credit card – and never will.” Others actually previously did have credit. But because of bad experiences in the past, or due to perceived or real injustices they suffered, they now stay away from all things credit-related. “I don’t mess around with credit cards anymore; they’re nothing but trouble,” these people will tell you. In fact, tens of millions of people go so far as to check out of the entire financial system, having not only no credit, but also no checking or savings accounts, and no dealings with any major banks or financial institutions.

Bucking the Entire Financial System

Did you know that there is an entire cottage industry within the financial services community whose whole reason for being is to reach out to so-called “unbanked” consumers? According to estimates from the FDIC, there are approximately 28 million unbanked or under-banked households in America. That’s just over 25% of the nation’s 110 million total households. The FDIC says the problem of being “unbanked” hits poor and minority communities disproportionately, with seven out of 10 unbanked households earning less than $30,000 a year. Half of the unbanked used to have a bank account, but now choose not to, and instead use high-cost services from check-cashing firms and payday lenders.

The Unbanked Often Pay A Steep Price For “Credit” By Using Payday Loans

The unbanked don’t get traditional loans. If they need a short-term loan, they get “credit” from payday loan outfits. I call payday loans “credit” because these are “signature loans,” meaning you sign on the dotted line, just like when you sign a credit card agreement. But with payday loans, you’re signing an authorization agreeing to give the lender cash from your next paycheck, in exchange for getting a cash advance today on that future check. Unfortunately, for a single loan, payday lenders routinely charge interest rates of about 400% on an annualized basis.

Ask The Money Coach

Posts Tagged ‘payday lenders’

Arkansas Attorney General Sues Operators of 6 Online Payday Lenders

Related Questions:

How Can I Get Rid of My PayDay Loans

Related Questions:

What are the Dangers of Getting Payday Loans?

Related Questions:

How Many Americans Have No Credit or No Checking Account?

Related Questions: