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What is a Payday Loan? (Page 1 of 2)
A payday loan or cash advance is a small, short-term financial instrument that allows a borrower to cover his or her expenses until the next paycheck. Typically, the amounts of such loans range of $100 to $1500, on 10-14 days term and have enough high interest rates (APR) from 390 to 900 percent.
Payday lending is regulated at the state level – each state has its own laws regarding payday loans. Meanwhile, the U.S. Congress passed a law in October 2006 that limits lending to military personnel at 36% APR. The Defense Department was concerned that payday lenders could cause financial challenges for soldiers and even jeopardize security clearances.
Some federal banking regulators are trying to limit or prohibit payday loans not just for military personnel, but for all customers. The high interest rates are considered as a hard financial blow to the lower and middle class people who are the primary borrowers.
Lenders prove that payday loans are often the only available way to get money for customers with bad credit history or who can not obtain another lower-interest alternative, such as a bank loan or a credit card. In their turn, critics say that the most of borrowers find themselves in a worse financial situation when they have to repay their loan. Many of them get trapped into a cycle of unsecured debt.
Statistics compiled by the Center for Responsible Lending show that the large part of the payday lending’s profit comes from repeat consumers who can not repay prior loans on the due date and instead prolong their loans, paying extra fees each time.
Retail lending. Customers come to a payday lending store and qualify for a small cash advance in the range of $100 to $500 with payment on the borrower’s next paycheck. As loan charges, the customer will pay from $15 to $30 per $100 borrowed for 14 days period, which translates to interest rates of 390 to 780 percent (APR). On the due date the borrower returns to payday lending store and writes a check to his lender in the full amount of the cash advance plus charges. If the borrower does not repay the loan, the lender may process the check traditionally or through electronic withdrawal from the borrower’s bank account.
If there is not enough money to cover the check at the checking account, the customer will face extra fees from his bank in addition to the costs of the loan. Meanwhile, the most of payday lenders offer an extended payment plan with no additional fees for customers who can not pay out their loan at the due date. In several states like Washington, extended payment plans are required by state law.
Internet lending. You can get a payday loan not only from payday lending store, but online through special lending websites. Typically, a customer fills out a simple online application form, where he or she indicates required personal and bank account information, Social Security number and employer information. Some lenders require fax copies of a check, a recent bank statement, and signed paperwork. After instant approving the loan amount is direct deposited into the borrower’s checking account. On the due date loan payment with fees is electronically withdrawn from borrower’s account.
Bad Credit Auto Loans
Bad credit auto loans are among one of the highest non-paid loans in America. With higher interest rates and lower approval numbers, bad credit auto loans are few and far between. Many companies offer bad credit auto loans, but whether or not you decide this is the best company for you is key.
Companies
One of the lowest interest rates available for bad credit auto loans is 21%. This is much higher than the average 10% that good credit consumers are offered. The reason behind the higher interest rate for those with bad credit, is the finance companies and banks feel that those with bad credit are a higher risk when it comes to paying back the loans. They make this decision by looking at your credit history and whether or not the history shows instances of overextending or overspending. Research companies prior to deciding on one, even if that one is highly recommended by family or friends. That company may have been ideal for their needs, but every credit report and consumer is different.
Look for companies that offer a fixed interest rate, and not a variable one. Variable interest rates mean that one month your payment may only be $400, but the following month if the interest rate is higher, your payment will be higher as well. Companies that offer early payoff restrictions should carefully be considered. Some will fine you with a penalty for early payoff, while others will forgive a portion of the loan after making a few years of on time payments. Companies that offer you the possibility of rechecking your credit history after a year and then lowering payments should also be considered, as your payments could become lower.
Interest Rates
Interest rates are a major part of bad credit auto loans. As of now, there are banks offering 4.9% APR or annual percentage rates for good credit. Bad credit auto loans are seen as high as 29% APR at this time, which means that even though you have bad credit, and it has been shown by your credit history that you have a hard time paying on time, you will pay more than those with good credit. To a consumer, it does not make sense to put more payments on those who cannot afford it, but to banks and financial institutions, bad credit consumers are a possible loss. With higher interest rates, the payment goes up and normally the time period of the loan goes up as well.
Budgeting
When looking for a bad credit auto loan, decide how much of a payment you can really afford. Not the high end and the low end, but what you can actually afford with all of your other bills. IF you budget yourself within $300 of your bills, then you can& 8217;t actually afford that $300 payment and would have to go lower. This will help you decide what company to go through as well. Some companies will only finance new cars, in which case a payment would be well outside of your means. Complete a budget of all your bills and decide what payment is comfortably able to fit into your expenses. This will help guide you to a company that offers the options you need.