Avoid The Trap Of High Interest Payday Loan Consolidation With These Alternatives To Debt

For the over twelve million Americans who get payday loans every year, the repayment doesn’t stop until the next pay day. The research provided by the Consumer Finance Protection Bureau shows that more than 80percent of these loans renew every 14 days. The majority of the subsequent loans are for amounts that are equal to or higher than the initial. The reason for this is that these loans typically charge high interest rates, putting those who take them into a downward spiral of high interest and low income. If you fail to repay them it could have grave financial penalties.

There are alternatives to get rid of the predatory lending and gain control of your financial situation. https://consolidationnow.com/payday-loan-consolidation/

Alternatives to payday loans

Before you apply for the payday loans, it is important to consider all possible options for repayment, including asking for the advance of your company, borrowing funds from family or friends or even selling items that are not used. Be mindful that you have other options for borrowing with lower rates of interest and costs that could be offered to you.

Here are some loans to consider:

Personal loans, like the ones offered by your credit union, bank or online lenders generally are paid back over two to three years with rates of interest based on your credit score, generally at 36 percent or less. Personal loans may differ, but it can vary from $800 to $30,000. If you use it wisely it can improve credit scores and aid in to consolidate debts with higher interest like credit cards. However If you already struggle with debt Personal loans can increase your debt burden. However, they’re more beneficial than payday loans, which could be a source of interest that ranges from to 400 percent.

The alternative payday loan, which can be provided through credit unions customers generally have rates of interest that are below 20% and provide the loan amount in general less than 800 dollars.

If you do have an open credit line It’s better to use the credit card you have already got. With the possibility of a rate of interest between 36% and 36%, this is more affordable than the personal loan.

How do you manage the existing payday loan

If you’re already obligated to a payday loan know the options available to you.

In many states, an extended payment plan might be available to pay lower monthly installments. However, this kind of plan is not available in every state and you should check with your lender to see whether it is offered in your state. Additionally, the extended payment plan is usually only utilized once per year, so you should not expect to roll-over loans, but receive extended repayment.

If you do have access to one of the loan options listed above, you can combine the payday loans into credit card credit union loan or personal loan with the lower rate of interest.

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Third Try to reach a direct resolution with your lender. in the event that this isn’t feasible, you may make a complaint to either the regulator of your state or Consumer Financial Protection Bureau. Although lenders aren’t required to take action to state regulators, the CFPB could be able to give you valuable advice to help you negotiate your issue.

It is also possible to be part of a debt management program. These are credit counseling organizations who are trying to find lower interest rates from your lenders, which will reduce the amount you pay in interest. In turn, you pay the credit counseling agency an all-monthly payment that they then make to settle your obligations. But, implementing the debt management program may mean that you have to cut off your credit cards while you are in the course of the program, which could affect your credit. The agencies could also charge a monthly cost that ranges from $ 25 to $75, and a charge for establishing the program. The initial assessment session is typically free and worthwhile, if just to understand the choices.

Also, declaring bankruptcy could erase most debts (with some notable exceptions such as student loans) However, it could affect your credit score. Although bankruptcy isn’t always beneficial but it can provide an end-to-end solution for those who are stuck in a perpetual cycle of high interest debt and a worsening financial situation.

Interest on a typical Utah payday loan consolidation is 554% APR

Utah high-interest payday loan consolidation companies say pandemic is hurting their already struggling industry – where nearly one in three stores have closed in a four-year crisis amid tighter regulations . Critics say government aid for coronaviruses may have reduced the need for such loans.

As the surviving loan stores try to last, they have raised their already astronomical rates – from an average annual rate of 523% a year ago to 554%, according to a new state report. (It’s also 20% more than the average of 459% they were billing four years ago when their crisis started).

At this new average rate, borrowing $ 100 for just one week costs $ 10.63.

If a borrower pays this off in 10 weeks – the limited time that Utah law allows lenders to charge such high interest on short-term loans – the interest would cost more than the original amount borrowed ($ 106.30 against $ 100).

Some of the loans in Utah cost much more than this average payday loan consolidation

The highest rate charged by a Utah payday lender in the last fiscal year was 1669% APR, or $ 32 per week on a $ 100 loan. Interest for 10 weeks at this rate would cost more than three times the amount borrowed ($ 320 versus $ 100).

In short, buyer beware.

Payday lenders close

Among the many reforms passed by lawmakers in recent years, the Utah Department of Financial Institutions was to track and report basic information about high-interest lenders each year, including average rates charged and highest rates. and the lowest found. It also tracks the number of high interest lenders in the state.

(Christopher Cherrington | The Salt Lake Tribune)

For the 2019-2020 fiscal year which ended June 30, the state reported 382 payday loan stores operating in Utah, down 8% from the previous year and 31% over a four-year period.

“Several national companies have closed sites, either by consolidation or by lack of profitability. This could be attributed to the highly competitive and regulated market in which we operate, ”especially since Utah has tightened regulations in recent years, said Wendy Gibson, spokesperson for the Utah Consumer Lending Association. industry.

She adds that the pandemic has hurt.

“The recent pandemic and its impact on the economy have dramatically affected the volume of loans in the payday lending industry at the local and national levels,” Gibson said. “As a result, we issued fewer loans and smaller loan amounts. “

Bill Tibbitts, director of the Coalition of Religious Communities, criticizes these loans because he says they hurt the poor, speculates that one of the reasons the demand for loans is declining is because of the stimulus measures generous and higher unemployment checks that the government provided during the pandemic.

“How many people have used their stimulus payments to pay off their payday loans? He asked, adding that the government aid may also have helped some potential clients avoid loans in the first place.

Reforms

Rep. Brad Daw, R-Orem – who passed a series of reforms last year against payday lending, but was defeated for re-election this year – says the tightening of rules may also have forced some of what ‘he says he is the worst players in the industry.

“My experience has led me to believe that a lot of little guys are some of the most abusive lenders. They are the ones who go bankrupt, ”he said. “The bigger ones, they start to be watched enough to start behaving a little more.”

Most payday loans are for a term of two weeks or until the borrower’s next payday. Reformed Utah law now allows them to be renewed for up to 10 weeks, after which no further interest can be charged.

Other recent reforms in Utah include a formal ban on using new loans to pay off old ones (although critics say this still happens under pressure from lenders); establish the right of borrowers to terminate their loans promptly and without charge; and the requirement for lenders to make available a long-term interest-free repayment program (instead of just suing for non-payment, resulting in high penalties as well as attorney and court fees).

This year, the legislature also banned a practice used by Loans for Less that put some of its borrowers in jail for failing to respond to a summons for non-payment, unless they could pay hundreds of dollars in. bail (which then went to Loans for Less). Even the Payday Loan Industry Association testified that the practice was so predatory it should be banned.

No more change needed?

A report from the legislative auditor general last year said new regulations still don’t prevent chronic use of payday loans – which can serve as a “debt trap” where the poor may not escape skyrocketing interest without new loans to cover old ones or possibly file for bankruptcy.

Auditors looking at state data found that 2,353 borrowers in Utah each took out more than 10 payday loans in a year. He revealed that a man had 49 payday loans during the year – and paid $ 2,854 in interest on a loan balance that averaged $ 812.

Still, Daw says that “it’s a good trend” that state data shows more payday lenders are closing, issuing fewer loans for less money, and fewer borrowers defaulting on their payments. But he and Tibbitts are worried about the current rising interest rates and what that may mean for the poor in tough times.

The rate hike could be due to lenders not collecting certain penalties, fees and other lucrative fees because fewer loans are past due, Daw said.

Tibbitts said: “We are in a recession because of the pandemic. And we hear rates going up. This is of concern ”for borrowers who are often low-income people.

Gibson, with the Association of Payday Lenders, said that despite the state’s findings on higher interest rates, “We are not aware of any lenders that have adjusted their prices up during the pandemic. In fact, we know that many Utah lenders have been proactive in responding to customers directly affected by the pandemic by reducing payments, delaying payments, or implementing special payment plans. “

The debt trap?

Still, Tibbitts said the higher rates found by the state make it harder for the poor to escape such loans. “The first rule is, when you’re in a hole, stop digging. But taking out a payday loan always puts you in a deeper hole. “

Gibson disagrees.

“Payday loans offer borrowers much better and cheaper options than bank overdrafts, late mortgage payments, or utility disconnection fees,” she says. “If you bounced a check for $ 100 with an overdraft fee of $ 39, the APR would calculate 2,033.57%. … Our customers are smart; they do the math and choose the cheapest option of taking out a payday loan.

The head of a nonprofit organization that helps people settle their debts with creditors disagrees.

Ellen Billie, executive director of the AAA Fair Credit Foundation, explains that when new clients who have payday loans are asked how much interest they think they’re paying on them, many will say 30 or 40 percent – not realizing that it This is often over 500%, despite signing disclosure forms containing this information.

Many of its clients report that they use payday loans because they think they cannot qualify for other loans and because payday lenders are friendly. Many borrowers say they need it to buy or fix a car, to cover medical bills, or to pay rent or catch up on a mortgage.

“They think it’s their only choice. But there are other options, ”Billie said. “If they come to us before they take out a payday loan and can’t pay their rent or mortgage, we have resources to put them in touch. There is rental assistance for emergencies.

She said some people take payday loans to pay their medical bills, while payments directly with a doctor or hospital would be much cheaper.

Payday loans should almost always be avoided, Billie said.

“I would never tell anyone no [to use one] to feed their children. If they have exhausted all possible resources, this may be the best solution for them. But we’ve never seen that. There are always resources we can help them with.

Meanwhile, many states have banned or cracked down on payday loans. Voters in Nebraska, for example, just approved an election initiative to limit interest on loans to 36% APR. Sixteen other states and the District of Columbia previously had 36% interest limits in place.

Similar national legislation has been introduced in Congress. Also, the Congress in 2006 capped all loans to active service members at 36%.

Beyond tariff caps, Arizona, Arkansas, Georgia, Maryland, Massachusetts, New Jersey, New York, North Carolina, New Mexico, Pennsylvania, Vermont, West Virginia totally ban these types of loans, according to the Consumers Federation of America.


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