Payday Loan Lowdown

If you have a credit card and have defaulted on the payment, you will know that a typical payday loan is more expensive than a credit card late fee. And yet people queue up to get money from businesses that are out to squeeze them dry of their last dollar.

If you are faced with a serious debt problem, the best thing you could do is speak with your creditors. Quite a few creditors agree to negotiate partial payments if a payment plan is in place. And if you are in serious trouble, there are the credit counseling agencies that can help you work out a debt repayment plan with your creditors.

– By Priya Jestin, Staff Writer

The holiday season is just around the corner and what better way to celebrate than buy a few gifts for your loved ones. If you are strapped for cash, just go online and click onto the sites of one of the many online payday loan companies.

Cyberspace seems to have provided very fertile ground for payday lenders as they have mushroomed like never before. It is much easier for consumers to now buy the gifts in time. So are these online loan companies a boon or bane to you. They do have their benefits but you must also be aware of the risks associated with online payday loans.

Whether online or not, payday loans are an easy method of obtaining cash immediately. They are good if used in small measures. Payday loan companies help you tide over immediate crises by giving you cash. But that is not to say all is hunky-dory on the payday loan front. It is important for you to follow a few simple tips if you want to have a good payday loan experience.

First of all, it is important to verify the authenticity and reputation of the online vendor. If they don’t provide proper information on the interest rates charged, then you better find yourself another lender. Also try to shop around before you settle for a loan.

You may spend more time, but could end up with a better option. Don’t forget to read the fine print. Read and reread the terms and conditions before you accept them. And finally, try to repay the loan within the specified period. This will save you a lot of heartache because some payday loan companies have been known to charge as high as 700% as interest!

Ottawa has moved ahead on its plan to crackdown on the payday lenders, proposing that Canada’s provinces and territories be given the power to regulate the industry. Canadian Justice Minister Vic Toews and Industry Minister Maxime Bernier recently introduced amendments to the Criminal Code that they say give Canada’s provinces and territories the ability to keep tabs on the industry. Theglobeandmail.com reports:

Manitoba has already drafted legislation aimed at dealing with the industry and has been pushing hard for the federal government to step out of the way. That province will set its interest rates through the same panel that sets utility rates. Practices such as rolling fees and interest into unpaid loans would be banned, and explanations of charges would have to be posted.

Read more: Ottawa takes aim at payday loan industry

Credit Unions are finally taking on from where payday loans left off. But they are definitely trying to make it easier for customers. In Virginia, credit unions like Langley Federal, which serves about 142,000 members - about half of them military - offers a low-cost loan designed to counter payday lending. Then there is 1st Advantage Federal Credit Union, which has a large membership contingent that’s connected to the Army, rolled out a similar product.

Representatives of the credit unions are confident that since these low-interest loans are now available, they will make payday loans unnecessary. And borrowers may find their options for quick, short-term, high-cost loans limited in the near future anyway. Payday lenders are coming under scrutiny from legislators nationally and in Virginia because of the fees they charge. Dailypress.com reports:

State Del. Harvey Morgan, R-Gloucester, has repeatedly expressed regret for penning legislation that opened the door for the lenders in the state in 2002, and he serves on a committee examining ways to force payday loan firms to curb their activities, such as by limiting the number of payday loans anyone could have at one time.

Read more: Consider alternatives to skirt payday-loan trap

I know I’ve written enough on this subject, but when it comes to your armed forces, nothing ever is enough. I mean, if your country is at war in different parts of the world and then you learn that our military preparedness is under threat, it does make you jittery, doesn’t it? A Defense Department study published last month found that members of the military use payday loans three times as often as civilians.

The worrying aspect is that fees for a payday loan can be high, averaging $15 to $30 for every $100 loaned. If a borrower does not pay back the loan by the next payday, s/he usually rolls over the loan, incurring another round of fees. Such fees can easily add up to an annual percentage rate of 400 to 700 percent. Payday loans have caught the attention of Pentagon officials and members of Congress, who worry that the high fees contribute to financial problems among military personnel. Washingtonpost.com reports:

While it’s bad enough for a civilian to fall deeply into debt, the consequences for members of the military can be far more severe, including the loss of security clearance or a court-martial. Those consequences make military personnel the perfect clients for payday lenders because they have extra incentive to pay back loans.

Read more: On Payday, Many GIs Pay Back

Can you live within your means? This question probably sounds dumb but believe me, it is very pertinent today. If you and your neighbor are equal in every manner — you earn the same amount as salary, have the same family size and a similar home, then how do your expenses vary? Ideally, all things being equal, the expenses of two very similar families should also be the same. But reality is anything but that. It has been found that on an average, most people live above their means.

People don’t seem to realize that they are regularly spending more than they earn and thereby creating a situation, which will eventually degenerate into heavy debt and this is where payday loans come into the picture. You are unable to meet your day-to-day requirements and are lured into taking a payday loan to meet your immediate needs. If you fall into this category of people, then the first thing you need to do is admit to yourself that you are facing a serious problem. Next, try to find ways to manage your expenses and control your debt. I will come back with a few tips to control your expenses soon.

In case you have just stumbled here, you are probably wondering why I’m going so hyper about our boys in uniforms. Well, they have fallen prey to the wiles of easy money. Anyways, since I’m nobody to judge how a man manages or doesn’t manage his money, I’ll move onto what I’d rather talk about: payday loans. These much-maligned instruments of money started out as simple and easy ways of providing you quick money. How and when they evolved into the villains of the piece is still a mystery. So what exactly is a payday loan? In simple terms, payday loans are short-term loans for employed people. These loans are very convenient and handy, but have one small problem — a high interest rate. Interests on payday loans have been known to cross the 500% mark!

The good thing about payday loans is that you don’t have to wait for a credit check by the company. A payday lender doesn’t need to know your credit history. While payday loan companies differ in the information that is required, most of them ask for the following information when you apply for a loan: Proof of employment, proof of a checking account, last bank statement, social security and driver’s license numbers, and proof of residency.

To apply for a payday loan, you have to give your lender a personal check for the amount borrowed plus a fee. Payday lenders allow consumers to write a personal check for immediate cash as long as they have a job and a checking account. The lender agrees to hold the customer’s check until his or her next payday.

Once the company approves your payday loan, the money is deposited into your account. This is done pretty quickly, usually by the next business day. If you cannot repay your payday loans on the date specified, you can extend the loan period. You will only have to pay an additional fee.

You can change your mind about a payday loan without incurring any cost as long as it’s no later than the end of the next business day. You must tell the lender and return the cash. The lender must return any fees charged.

In Canada at least, things have finally begun to move. The Conservative government is expected to introduce long-awaited legislation Wednesday intended to regulate the payday-loan industry. The days of storefront money lenders being allowed to charge 1,000-per-cent interest rates for an advance on your next paycheque may soon be over. Ctv.ca reports:

Government and industry sources say the bill will create a special Criminal Code exemption that lets provinces set short-term interest rates. "Stay tuned,” Justice Minister Toews said Tuesday after a payday bill was announced on the House of Commons order paper. "We’re working very hard on that particular issue.”

Read more: Conservatives to regulate payday loan firms

Consumer advocates recently urged legislators to limit high-interest, short-term payday loans to the same 36 percent annual interest rate cap that applies to other lenders in Virginia. However, representatives of the payday loan industry were not too happy with the suggestion. They said such action would force them out of business, denying cash-strapped borrowers a convenient source of credit that can be less expensive than fees for bounced checks or late credit card payments. Dailypress.com reports:

"People end up simply servicing their debt while never being able to retire the principal," Neil Walsh, a lobbyist for AARP Virginia, told the House Commerce and Labor Committee. "This is not financial assistance–this is financial disaster."

Read more: Legislative panel hears payday loan debate