What Is A Payday Loan?
Debt Payoff Calculator – According to the Consumer Financial Protection Bureau, a payday loan is defined as a “short-term, high cost loan, generally for $500 or less, that is typically due on your next payday.” Many Americans have found themselves in the desperate position of requiring a payday loan to alleviate some short-term financial burden. However, payday loans in America are considered predatory because of the exorbitant cost to the consumer. Interest and finance charges for payday loans are often upwards of 391% of the loan amount which can make payday loan debt payoff quite burdensome.Besides finance and interest charges being exponentially more than those of credit cards and personal loans, payday loan debt payoff is typically expected to be made within two weeks or a pay period, hence the name “payday loan”. If you find yourself in the difficult position of requiring a payday loan, it’s likely that repayment of the loan in such a short amount of time will also be very difficult. As a result, Americans are being even further penalized when the interest rates soar beyond that 391%.
How Do Payday Loans Work?
Payday loans are quick solutions to immediate financial problems. Consumers can apply for a payday loan online or in storefront locations with as little as an ID and a paystub. If approved for a payday loan, you will receive the loan amount on the spot. The guideline for repayment is that the full loan amount plus interest be repaid on your next payday which is typically two weeks. Repayment is made by postdating a check our granting access to a bank account from which repayment can be withdrawn. However, if you’re unable to make the payment, which is the case in 80% of payday loan cases, the penalties are hefty.
How Finance Charges & Interest Rates Are Calculated
Finance and Interest charges for payday loans are usually between 15% and 20% of the loan amount. To calculate the total cost of the payday loan, you multiply the finance charge by the loan amount and add the sum to the loan amount. A Debt Payoff Calculator can calculate an exact payment based on your loan amount, but for example, if you’re borrowing $375, which according to the Consumer Financial Protection Bureau was the average loan amount in 2020, at a rate of 20%,
Here’s what you’d do: 375 x .20 = 75, then add the finance charge of $75 to the loan amount: 375 + 75 = $450! This means that at 20% interest rate, you’re paying $75 just to borrow the $375. At an annual rate that would equate to 521% APR for a $375 loan which is astronomical considering an average APR for credit card debt is 15-30% and personal loans is 14-34%. If you’re unable to repay the loan amount within the two week period, the penalties will increase the cost even more. There are many web-based resources available to calculate your payday loan debt, but using a Debt Payoff Calculator can help you determine in advance what the overall cost of a payday loan will be. A Debt Payoff Calculator can also help you in the event you’ve accrued loan balances that you’d like to pay off.
Penalties For Not Repaying Payday Loans
If you’re unable to repay your loan in full by the agreed upon term, borrowers can request a “roll over” loan. A “roll over” loan adds an additional finance fee, a penalty, to the original loan plus interest. The “roll over” rate is even higher than the original rate. Let’s say you’ve borrowed a payday loan for $300 at the lowest finance charge of $15 per $100 borrowed, your original payoff amount is then $345. But then let’s say you need to request a “roll over” like 80% of payday loan borrowers do. Now you accrue an additional finance charge, at the same rate, which is added to your original loan amount turning your repayment cost into $397. As a result, the lender’s pockets are padded while the payday loan may become unmanageable for the borrower. Again, a loan calculator, can best calculate your payday loan debt.
Rescinded Consumer Protection
As a Result of the devastating effects the costs associated with payday loans can have on consumers, in 2017 US legislation enacted protections for the consumer. However, under the Trump Administration, many of those protections have since been rescinded. The protections were intended to force lenders into ascertaining the affordability of repayment of payday loans for borrowers. In essence, the originally approved but now rescinded protections were as follows:
Lenders Need To Determine If Borrowers Could Afford Repayment Through Verifying Income
◊ A principal payoff option that would only allow consumers to borrow up to $500 if they were not able to pass the aforementioned full payment test
◊ A ‘chill period” that would disallow borrowers from taking out subsequent payday loans if they have previously been unable to repay a payday loan
◊ Mandatory reporting of payday loans to the three major credit unions. This included updating credit records upon receipt of repayment
◊ Alternate repayment options that would require lenders to facilitate longer–term loans with less risk
Because the government recognizes the adverse effects and impactful cost of payday loans to consumers, these protections were enacted in 2017. However, under the Trump Administration all of these consumer protections have since been rescinded. Consumers are back to square one, which means the risk of exorbitant cost related to payday loans is omnipresent.
Alternatives To Payday Loans
There is likely a payday loan relief program available to you if you require it, but know there are other options to handling payday loans. If consumers do find themselves in a financial pickle where they may consider taking out a payday loan, it’s good to know that there are alternatives to these costly and burdensome loans. Some alternatives to payday loans include:
Employees across the nation understand and recognize that their valued employees may sometimes find themselves in a financial duress. As such, many employers offer paycheck advances, an advance payment on the individual’s upcoming paycheck, at no no cost. This is certainly a superior alternative to a payday loan.
Borrowing From Family & Friends
Although this can be uncomfortable to approach, friends and family may be willing to help you and the repayment of a loan couldn’t possibly cost as much as a payday loan. Furthermore, the repayment period would likely be more desirable than that of the payday loan.
Community Banks or Credit Unions
Personal loans secured through community banks and credit unions are exceedingly affordable when compared to payday loans. Banking regulations make the repayment terms and finance/interest rates at these smaller lending institutions more desirable. Personal loans acquired at small banks and credit unions could boast rates between 10%-12% in comparison to the 400%-%500% rates of payday loans.
◊ National Pay Day Relief ◊
National Payday Loan Relief is a debt settlement company that provides an effective payday loan relief program that can help you climb out of debt associated with a payday loan. If you’ve found yourself in the position of having to take a payday loan, and have had difficulty repaying its balance, National Pay Day Relief can help. Simply, they can help you pay off your payday loans. A web-based service specializing in paying off payday loans, National Pay Day Relief can help you navigate the difficult and frustrating process of debt repayment and help you to pay off your payday loans.
National Pay Day Relief will tailor a repayment plan, commensurate with your state’s lending laws, to help you comfortably pay down your loan amount. Their relief services aid you in consolidating your payday loans in a manageable, low monthly payment so that your loans are settled one at a time. Furthermore, they work to reduce or even eliminate interest payments due on your payday loans, often settling your total loan in as few as 3-6 months. NPDR is the solution to your payday loan nightmare !