Payday Loans - Not The Lifesaver They Say They Are!
If you’re in a jam and need quick cash payday loans can seem like a lifesaver. That’s what we thought when we first began our research. But after reading and researching what these loans are all about we recommend that you STAY AWAY from them! They WILL NOT help you, and in fact, could jam you up even more!
First and foremost this site is dedicated to helping you GET OUT OF DEBT and re-establish your credit. And payday loans will probably only make the problem worse!
This article is not about budgeting your money better, or lecturing you on financial responsibility, or judging you for being in a jam. We've been there ourselves and know how it feels to be caught between a rock and a hard place. What we want to do is inform you about what these loans are all about. And if you are in desperate need and have nowhere else to turn, at least you can make an informed decision about using a PayDay or Title Loan company.
Here’s the short version of what payday loans are all about:
Payday loans are personal cash advances. Thousands of people use them. Typical loans are between $100 and $1500, are usually on a two-week term and typically have interest rates of 390 percent to 780 percent APR. That’s 1% to 2% compounded DAILY and 30% to 65% monthly! What does this mean to you?
If you borrow $300 through a payday loan company, and pay it back in 2 weeks you’ll pay between $48 and $113 in interest! If you don’t pay it back for 30 days you’ll be paying $118 to $232 in interest!
The other option is the car title loan, or car title loan. Like payday loans, car title loans are marketed as small emergency loans, but in reality these loans trap borrowers in a cycle of debt. A typical car title loan has a triple-digit annual interest rate, requires repayment within one month, and is for much less than the value of the car. But you’ll pay more than your car is worth in interest if you don’t pay the loan back quickly!
With an car title loan your car title is used as collateral to secure the loan. This means if the loan is not repaid, they may take the car and sell it to get the loan money back. Most title lenders require that you own the vehicle free and clear.
As stated above, the laws vary from state to state but most of them are fairly similar. Here are some things you should know if you take this kind of loan:
How high are the interest rates?
Payday loans are written with an interest rate for a short time period. For example, the loan will show a 25% interest rate for one month. But this rate over a year is actually 300%. car title lenders will usually write a loan for 30 days or less. At the end of the month, the lender will accept the interest payment and allow the debt to be “rolled over” for another month. On a $600 loan, the interest would be approximately $150. This means you owe $750. If you only pay $150 for the month, you will owe $750 AGAIN the next month.
What if I can’t pay the loan off within the proper time?
If you can’t pay off the loan it will be rolled over. In many cases the borrower will not be able to pay the loan off in full, and the interest will begin to build up all over again at the high rate. This is called “rolling over” or ‘flipping” the loan.
How many times can the loan be “rolled over”?
By law, the lender may not allow the loan to be renewed more than six times. If the loan is “rolled over” that many times, the interest charged will be very high.
What happens if I don’t pay off the loan?
Except when there is fraud, the only thing the auto title lender can do is to repossess and sell off the car. The lender may not sue you to repay the loan, but they will take your car. Call an attorney if this is about to happen .
Payday loan and car title lenders have made generous campaign contributions, and industry-friendly laws have passed in some states at breakneck speed. In other states, payday loan and car title lenders have sought to hide the true nature of their products in order to exploit loopholes in existing laws -- pretending, for example, that their abusive loans are "sales and leasebacks," "pawns," or "motor vehicle equity lines of credit."
For a more permanent solution to your credit problems we recommend either a debt consolidation loan OR credit counseling. For a complete list of alternatives to payday loans click here. Both of these options will buy you at least 30 to 45 days time before you have to resume payments, as that’s how long it takes to do all the paperwork and arrange for the payments to start. This is usually long enough to give you breathing room. PLUS with these choices you will lower your monthly payments and be able to work them into your monthly budget.
If you’re car is in need of repair then contact one of our auto loan lenders that work with bad credit. Don’t throw good money after bad fixing up a broken down car! Most people don’t realize that the amount of money they spend on extra gas (because their car is old and not fuel efficient) AND the mechanic bills that keep popping up are often enough to cover a car payment!
We started this site to help you get out of debt and start rebuilding credit. Payday loans and car title loans work in the opposite direction. With their huge interest rates you’ll just wind your way into more debt and continue the downward spiral. Don't let yourself get caught up in this trap! There ARE better options.
Portions of this article came from the following source: http://www.scjustice.org/pdfs/TitleLoans.pdf
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