Payday Loan Lowdown

By Priya Jestin, Staff Writer

The authorities may have come out in full force against payday lenders. However, there is one simple fact that they have overlooked. No payday lender has badgered people to come to them and use their services. Payday lending does not involve shoving money down the pockets of unwilling people.

Only those people who need money urgently and have a regular job, through which they can repay the loan, are eligible for a payday loan. Of course there are people who find it difficult to repay their loans and fall into a debt trap. But that involves a deeper malaise — one of free spending without proper saving education. So when the authorities are trying to oust payday loan centers, they are trying to cure the symptoms of the problem and not its root cause. What is the need of the hour is to educate people on how to spend within their means and save some for a rainy day. Once that is done, payday loans will not seem like a big problem.

– 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!

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

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.

If you live in the state of Utah, this one’s for you. I want to inform you about the state laws that regulate payday lenders. Why? Well, to be forewarned is to be forearmed — that’s why. And these are no toothless laws: The Department of Financial Institutions enforces these laws and conducts an annual examination of each payday lender’s operation. Here are a few features of the law:

• The lender must post a schedule of fees charged for a deferred deposit loan. The fees must be disclosed using the APR and the dollar amount of the fees.
• Your payday lender should post the complaint number — the number you can call to file a complaint. In case you don’t have the number, here it is: (801) 538-8830.
• Your lender cannot extend the loan beyond twelve weeks from the initial execution date of the loan.
• Your lender CANNOT threaten to bring criminal proceedings against you if a check you provide to the lender is returned for insufficient funds.
• You can rescind the payday loan and finance charges if you return the loan amount by 5:00 PM the next business day.

A recent report by the Economic Policy Institute, the rich got richer faster between 2001 and 2004. Alternately, the poor got even poorer and are finding it difficult to stay out of debt. Fortwayne.com reports:

That’s why more payday loan outfits are migrating from the inner cities to suburbs. Needy middle-income families are more willing than before to go into debt to maintain their standard of living.

Read more: Falling wages create more working poor

Consumers have for long being harboring the misconception that payday loans are only for emergencies. If planned correctly, payday loans can be used to supplement your income so that you don’t have to use traditional long-term financing options.

Payday loans offer consumers the flexibility of planning their purchases or expenses. For example if you are planning to go on a vacation, your costs are bound to rise. Now if you try to take a loan from a regular credit company, you will have to go through credit checks and provide guarantees.

Payday loans ask for no such thing. You only have to provide proof of employment and that guarantees you an immediate loan. Recent studies have shown that an increasing number (about 34%) of payday loan customers use their money to pay for planned expenses or other discretionary uses

With all this noise about payday loans being bad, you are probably wondering if we need something like that. The answer is: whenever an unexpected situation arises and you cannot resort to any other source of finance because you don’t have enough time to go through regular loan procedures, a payday loan may seem a blessing. Americanchronicle.com reports:

There are many common situations that may happen and catch you without enough money to solve it. Unexpected expenses, running out of cash when your payday is many days away, medical bills, legal fees, medicine, an urgent car repair, etc. In any case the need for cash is so pressing that the only choice is to apply for a payday loan.

Read more: What to do when you need Cash Fast

While the authorities have come out in full force against payday lenders, there is one simple fact that they have overlooked. No payday lender has badgered people to come to them and use their services. Payday lending does not involve shoving money down the pockets of unwilling people.

Only those people who need money urgently and have a regular job, through which they can repay the loan, are eligible for a payday loan. Of course there are people who find it difficult to repay their loans and fall into a debt trap. But that involves a deeper malaise — one of free spending without proper saving education. So when the authorities are trying to oust payday loan centers, they are trying to cure the symptoms of the problem and not its root cause. What is the need of the hour is to educate people on how to spend within their means and save some for a rainy day. Once that is done, payday loans will not seem like a big problem.

Some people suggest that the solution to payday loan problems lies in banning them. Can it be that easy? I believe that if we totally stop payday loan companies from operating, it would be akin to throwing the baby out with the bathwater. Agreed the system in its present form is far from beneficial to people. The only people who make money are the owners of these centers. But with a little fiddling and tightening of the rules, payday loans could become a blessing.

One of the first things that need to be done is lower the interest rates –a considerable amount of lowering will be required to make payday loans a long-term financially viable option. The next thing that needs to be done is educate the people about the true benefits of payday loans. Yes, you heard me right there. Payday loans are not very good in the long term, but they do have their benefits. One of the biggest plus point is that it allows people to have a little extra money in an emergency. But it is important that you don’t begin to rely on these loans too much or they will harm you.