Every year countless working class Americans fall victim to pay day loan sharks. Consumers who are looking to get a little extra cash in advance are being charges extremely high interest charges. A lot of states have enacted laws to stops these scams on low income families but now many loan sharks have moved their businesses onto the internet, where state by state jurisdiction is still in question.
Pay day loans are ideally a system of short term borrowing to make it through a week or two before the customer is paid again, at which time the amount of the loan and a fee would be paid in full. The idea of a pay day loan is appealing, and would work if there were not numerous loan sharks out to sabotage individuals in financial need. Most short term loan companies today charge outrageous fees that set back the consumer even further in debt. For instance, if you needed to borrow one hundred dollars, you would write the loan company a check for around one hundred fifteen dollars. The lender, depending on your agreement, will hold the check to deposit at a later time, usually your pay day. When that day comes around you may find yourself in trouble again because your entire new paycheck is going toward paying back the loan company. Most loan sharks recognize this problem and are always quick to offer roll-over plans. This is where the company will agree to hold your check even longer, for additional fees of course. Sometimes the loan sharks will even offer to lend you more money in addition to holding the first check payment longer. This is where all of the high fees add up. If you roll-over the initial one hundred and fifteen dollar loan pay payment a few weeks you could be looking at a 100% interest charge.
By law, under the federal Truth in Lending Act, pay day loan costs must be disclosed. Many different informational items are to be given to the consumer, this includes finance and annual percentage rate (APR) charges to be given in writing. Most borrowers from small pay day loan operations are not given a good explanation of these items. Finance fees, are to be given on paper as a dollar amount. The Annual percentage rate is referring to the cost of credit on a yearly basis, also to be given to the consumer in writing.
Most legitimate and knowledgeable financial advisors will tell consumers to avoid borrowing from pay day loan companies, period. In a lot of cases it may be better to consider getting extra cash in the form of a small loan from a local credit union, a small loan company, your employer, or friends and family. Credit cards also sometimes offer cash advances, however, they can also have high fees that need to be watched out for. Whatever option you are looking into always compare APR and finance charges from credit offers to get the lowest personal cost. It is also important to ask your creditors what they charge for late payments. With today’s competitive market of legitimate lenders, many companies are offering fewer to no penalties for payments that are not substantially late.
A very good piece of advice would be to set up a savings account so that you have funds available in times of need. For instance, you could obligate yourself to take what you would pay an advanced fee loan company in interest and put that in a savings account. Setting up a repetitive habit of this instead of roll-over borrowing will add up, leaving you a security nest egg.
If you need additional financial advice, contact a consumer credit counseling service. Legitimate operations will work will you to sort through finances and make a working budget. In some cases counseling services will even offer to set up a dept management plan for the consumer. However, these plans should only be enacted as a near last resort and with the consumer having a complete understanding of the process.
The best advice for consumers who insist on getting a short term loan from pay day loan companies is to never borrow the whole amount of your next check. If you are going to be getting paid three hundred dollars then only borrow around one hundred from the advance pay day company. Also, try to never use a roll-over option because the fees will eventually exceed the original loan amount.
If you think a lender has not been honest and is violation the Truth in Lending Act, then file a complaint by contacting the Federal Trade Commission at 1-877-382-4357. You can also file a complaint online at the ftc.gov.