Get The Scoop On Payday Lenders
Payday Lenders are in general, ripping off the American public
. You see all the aggressive ads all over tv, they make it sound very easy to borrow their money. This couldn't be further from the truth.First, these lenders tend to drain money from low-income communities, preying on the ones with credit problems who are least able to secure lower-interest rate forms on credit. Borrowers don't understand that by borrowing their money at such a high interest rate they tend to get trapped into more debt. Borrowers often don't understand how short-term the loans are. For instance it might be a two-week loan, often compounded by EAR (effective annual percentage rate) versus APR (annual percentage rate). As an example, the APR on a $100 two-week loan with a $15 charge is about 390%, whereas the EAR on the same loan is 3685%!!! Wow what a difference. If you are in the market for a payday loan please make sure you pay attention to the APR versus EAR rates.
However, lenders ignore their limits and charge more than they are legally allowed to by law. One Illinois customer was actually awarded $234,000 in fines after paying $360 on a $300 loan ($13.50 more than the company was legally allowed to collect) however they kept sending her notices stating that her balance was $630 dollars and her account was in arrears! Payday loans have about a 10-20% default rate, leaving their victims in even more debt and the lenders without getting repaid. They defend their high interest rates by stating that their loan processing costs are about the same as any mortgage lender, however in most cases, as payday lenders just look at paystubs, whereas a mortgage lender draws an entire credit history report as well as banking statements and a multitude of other documents in the process, so this cannot possibly be true.
Today there are many different variations on the payday loan. One is the title loan. A customer takes his/her paid off auto title to a lender who lends them money, often also at this very high rate of interest, and holds the title to the vehicle. As long as the customer pays on the loan, the title will go back to him or her, but if he defaults on the loan, the lender then takes possession of the vehicle. Refund anticipation loans at tax time are based on the same premise, and many people simply think they are just getting a "rapid refund" and do not even realize they are just getting a loan against that tax refund. These are just a few variations. Companies are getting more clever at disguising what is really a payday loan.
Some studies have said that poor neighborhoods with many of these lenders have lower crime rates, but I have a hard time believing that. Instead, I urge readers to consider any other alternative, such as pawn shops, community assistance programs, credit unions,or even just loans from family members to name a few.
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