The Good, the Bad and the Ugly of Payday Loans and Quick Money
LOUISVILLE, Ky. (WAVE) – If you can’t make ends meet and need cash fast, many people turn to a loan to make amends for their financial woe.
The simple truth is that many people cannot qualify for traditional loans because they are not making enough money or have poor credit. With few options for getting cash fast, some are turning to payday loans, but these advances will cost you dearly by charging fees and high interest rates. What seems like a good deal often ends up becoming a debt trap for borrowers.
“Twelve million Americans have paid millions of dollars in unnecessary fees using payday loans,” Mark Lamkin, founder and CEO of Lamkin Wealth Management, told WAVE 3 News.
According to The Pew Charitable Trusts, those 12 million payday loan users pay about $ 9 billion in loan fees. The interest rates for payday loans are generally disguised as fees ranging from 300 to 500% per annum.
“Three million of them roll nine times on average,” Lamkin said.
In other words, three million people who have taken out a payday loan cannot pay it off within the two week period, so they either renew the debt or borrow again. When you do this, you can be caught in a cycle where you never have enough to pay off the loan. The amount you owe increases each time it is renewed, and new fees and interest are added. A simple loan of $ 85 could end up turning into a loan that you have to pay back for hundreds of dollars.
“That $ 85 is going to cost you $ 235, or in terms of the interest rate, you just paid 176% interest on your money,” Lamkin said, shaking his head in disapproval.
Borrowers can easily get caught in a cycle of debt and take out additional payday loans to pay off the old one.
“They make their money repeating this over and over again,” Lamkin said.
Each state has its own laws regarding payday loans. Indiana has a long history of payday loans that began in the 1990s, and they are still legal and in demand. Although payday loan regulations are somewhat restrictive in the state, average APR rates are still very high and can reach triple-digit numbers. Indiana limits the amount of a payday loan to a minimum of $ 50 and a maximum of $ 500. Indiana borrowers are not allowed to get more than two loans at a time, and the loans must come from different lenders.
The Kentucky legislature has also passed laws regarding the operation of payday loans for borrowers to protect. Kentucky borrowers are not allowed to take more than two loans simultaneously from the same lender every two weeks. The maximum total amount of all outstanding loans that a person can have at any one time in Kentucky is $ 500. The maximum loan term is sixty days and renewals are prohibited.
“Kentucky passed a law that says you can only have 2 payday loans open,” Lamkin explained. “Before, it was unlimited.”
Even with the change in law that people can only have two payday loans open at a time in Kentucky, it still allows a single borrower to take out 52 loans per year.
“You pay 15 percent for 14 days of money,” Lamkin said with a laugh. “It’s not a good deal with the times.”
Lamkin urges those in need of quick cash to look for payday loan alternatives first. According to a survey conducted by the Pew Charitable Trust, borrowers agree that they had other options than payday loans:
· Reduce expenses (81%)
· Delay the payment of certain bills (62%)
· Borrow from family and friends (57%)
· Get a loan from a bank or credit union (44%)
· Use a credit card (37%)
· Borrow from the employer (17%)
“There is a chance that payday loans will be scrapped by law,” Lamkin said.
A replacement for brick and mortar payday loan sites could be as close as your smartphone. There are now several applications that will allow you to take out a quick loan without fees or high interest.
“You’re going to have to watch ads for the cost of doing business,” Lamkin said with a laugh. “There are nine apps that I have found online that are all worthy of your viewers’ use.”
The nine apps at the top of Lamkin’s list that lend you money right now:
· To earn
· Ready on rainy days
· Silver Lion
· Solo Loan
Most money-making apps don’t think of the money you receive as a “loan.” It’s a cash advance that you make on the job.
“When you get paid, you have to pay for this,” Lamkin explained. “They have access to your account. You can’t roll it nine times “
Another loan alternative is to join a credit union.
“Credit unions are more likely to give small amounts to people with a lower credit rating than any other banking or private institution,” Lamkin explained. “You have much better access to capital in a credit union. “
Technology has also led to online banking. With online banking, you ditch the branches, but you get other benefits. You can earn a higher rate on your savings account or checking account because online banks have less overhead than banks with branches. The best online banks also charge low fees where applicable and support intuitive mobile apps.
“Don’t be afraid of online banks that are FDIC insured,” Lamkin said. “Often, online banks offer personal loans that you don’t need to have great credit for. “
If you constantly need a loan to make ends meet, you probably have a bigger problem to solve than just getting the cash to meet your needs fast.
“Your budget is wrong,” said Lamkin. “You have to reduce. You can’t spend that kind of money, and you’re going to get caught up in this cycle of debt, and it’s going to lead to bankruptcy.
The Consumer Financial Protection Bureau assists consumers by providing educational materials and accepting complaints. He oversees banks, lenders and large non-bank entities, such as credit bureaus and debt collection companies. The Bureau is also working to make information about credit cards, mortgages and other loans clearer so that consumers can understand their rights and responsibilities.
If you have any problems or questions, the CFPB can be a great resource.
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