14 day Payday loans always sound nice in the ads. They won’t bother you till your next payday, and you can have the money until then, no questions asked. It is a short term loan, and the cost is much higher. It must be an effective argument, about 7 billion annually is generated through fees charged by 14 day payday loans. And it is reported that 12 million people use payday loans each year.
Are 14 Day Payday Loans Too Easy To Get?
It is not hard at all to get a 14 day Payday Loan? For one thing, no credit check is necessary. People with bad credit, or no credit cards have a place to borrow money. If you have a car repair that needs done now, you have access to funds you wouldn’t normally have. They are good for an expense that is temporary, or an emergency type situation. As long as you can pay it back on time.
You borrow $300 for 14 days and agree to repay a certain amount of interest about $15 to $20 for each $100 you borrow. BUT, if you don’t repay the loan in 14 days, then it quickly gets very expensive. If you just pay the fees, you can push the loan ahead for another 2 weeks.
What is the Real Cost Of A 14 Day Payday Loan?
Here is an example of fees charged by typical payday lenders.
(14 day minimum)
Why Do People Continue To Use 14 Day Payday Loans
If people need money quick, then, a payday loan is quick. It’s easy and does not take a lot of paper work. All you really need is a bank account and a source of income and some identification.You don’t have to worry about paying it back until you get your next paycheck, or what ever term you choose.
The problems arise when the loan becomes due and borrowers can’t afford the high payment terms? That is where people get into trouble. It is also where payday loan people make a fortune!
When people can’t repay the loan quickly in the time limit they agreed upon, they are charged huge fees. The borrower often can’t afford the big payment, so he refinances the loan again and pays the interest fee again and is charged additional fees. This is very different from a traditional installment loan, where you pay the debt over months or even years.
People quickly get stuck in a costly cycle of refinancing for a longer period of time.If you can’t get a bank loan or you have no savings and you need money, what choice do you have? That is exactly how they suck the borrower in.
The Payday Loan Trap
People would borrow a few hundred dollars and by the time they refinanced it a few times, they owed thousands of dollars requiring payments they could not afford. Payday lenders were more than willing to refinance these loans at these ridiculous rates! The sad fact is that 70% of the people who use payday loans are using them to cover basic living costs.
Here Is a table showing the common interest rate charged:
This Was Outlawed Years Ago
This kind of interest is something a loan shark would do! In fact, payday loans are considered a form of predatory lending. Not so many years ago charging high interest rates was illegal! In fact, before 1970, 18% interest was outrageous! Now 28% percent is common. Some credit cards start at 19.9% and charge 28% if you are late on a payment and apply $25 fees and monthly charges! These fees are steadily climbing and have reached $50 or more.
The Consumer Financial Protection Bureau
The Consumer Financial Protection Bureau (CFPB) was created by Congress and President Obama when the signed the Dodd-Frank Wall Street Reform and Consumer Protection Act. This happened in July 2010, and it supposedly established an agency for the protection of consumers. Abusive, deceitful and unfair lenders were to be held to higher standards. So what happened?
The CFPB was also given the power to create new regulations when they were created. They have proposed new regulations on payday loan lenders. The purpose is to make the loans safer and end the vicious cycle of getting consumers caught in paying back tens of thousands more than they originally borrowed.
The biggest problem with the CFPB is that they are subject to oversight by other federal regulatory agencies. The Financial Stability Oversight Council has veto power over any regulations that the CFPB might consider necessary. So, it is a protection agency, without teeth.
In fact if they are harming small business, their regulations would be considered too restricting! I would think these payday loan sharks would fall into the small business category, so just veto any laws that try to curb this activity, right? Just follow the same unethical behavior that got us here in the first place.
South Dakota Uncapped Interest Rates
When did lenders get the freedom to charge whatever interest rate they want to charge? Well, back in the 80’s, South Dakota, removed the cap on the interest rate, and saved Citibank. 3000 jobs were created in South Dakota, and Delaware soon followed. Credit Card companies flocked to both states. This allowed them to sell high interest credit cards to other states.
Now, they could charge 25% on their Credit Cards, even in states whose usury laws had caps on interest rates. It was the start of the outrageous uncapped interest rate boom that continues to this day. Rates appeared at 25% and 30%, and fees for late payments went from $5 to $15 and as high as $39. The Credit CARD Act of 2009, capped late fees at $27, but only for first time offenders. If you miss a second billing cycle, it jumps to $37. Each fee get added to your payment, and eventually a penalty increase hits the credit card APR.
The law is simple nowadays, if it is on the credit card and you agree to the terms, it is legal.This has caused credit card debt to soar to over $850 billion dollars in the U.S. In 1978 it was $48 billion.
Will Regulations Help
It is a start but it is not the answer. The regulations are coming under fire because they will hurt the Payday loan industry. However, 75% of adult Americans dislike Payday lenders. But, they are still being defended by politicians.
- Ensure people have the income to repay the loan on time.
- Credit checks to determine if the loan is affordable.
- Limits collection attempts on checking accounts.
- limit the number of times the loans can be refinanced.
What is the answer? Do not use Payday lenders! It is a choice we make, so it is our fault in the end. What can we do to avoid using payday lenders. If you have an emergency, try other methods first.
Things You Can Do Instead Of A 14 Day Payday Loan
- Borrow from friends or relatives- (Interest free loan)
- Pay the late fee of a late payment
- Credit card cash advance- will cost you more, but cheaper than payday loan
- Use a zero percent credit card offer with no balance, and pay it off within offer limits
- Add to a credit card and increase your payment amount to pay it off
- Pay minimum payments until you get caught up, but do not use minimum payments for extended periods.
- Find credit counseling programs to consolidate debt and extend payment options.
How to Get Help with a Payday Loan You Have
To find help if you are involved in a payday loan, check out the CFPB website. It is a good place to start. You can get good information about payday loans, and submit a complaint as well.
Talk to them first, before you get involved with other types of payday loan consolidations. Other types of government financing may be available as well.
Many offered loans might be a slightly higher interest rate, but it is surely a much better deal than payday lenders.
Some payday loan consolidations are nothing but scams themselves. So, be careful and check them out!
Government assistance for loans can also be found at govloans.gov/
You can also find links there to the Federal Trade Commission FTC and other help agencies.
Everyone needs to understand that these quick loans and the relief for them as well are traps. They are predatory loans that cause extreme financial hardship to everyone. People need to exhaust every possible avenue for short term cash and avoid these loans at all costs.There is help available, so take the time to look around.
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