Why Payday Loans Need to be Legalized? |
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Nowadays, payday loans are in huge demand. It's because payday loans can shower you with quick cash. But do you know the cons of such kind of a loan? Let us take an example. Sonia, a resident of California, walked into a cash-advance (payday loans are also known as cash advance or check advance loans) business, handed over a worthless, post-dated personal check, and left with $200 cash. Although she was still saddled with hospital bills, funeral costs, and other expenses from her husband's death three years earlier, the 41-year-old fashion designer felt she could afford this one short-term, high-interest loan. In fact, one of her relatives directed her to the cash-advance business that loaned her the money with no credit check and no hassle. Sonia was charged $39 for the first $200 loan, but shelled out $39 more two weeks later to extend the due date. Eventually, she had to borrow from another cash-advance business to pay subsequent renewal fees on the first loan. Then she borrowed from two other financial institutes. Because of one $200 loan, she now owes Cash, Inc., Cash First, and two EZ Cash and her debt stores a total of $880. Then Sonia came to know that payday loans are not at all helpful. In her words, "I just got in over my head." In fact, with payday loans it's too easy to get into debt. If you notice properly you would find that cash-advance business involves very high interest rate and threaten harsh penalties. The same thing happened with Sonia. Sonia could not keep up with the quickly mounting cash advance fees. Like Sonia, an average consumer takes out 11 or 12 payday loans a year, and nearly 40% of borrowers extend their payday loans over the initial two-week term. That's the point where borrowers fail and lenders profit. As the borrower lengthen his time period, lenders get more on interests. In payday loans, usually a borrower writes a personal check payable to the lender for the amount he or she wishes to borrow plus a fee. The company gives the borrower the amount of the check minus the fee. Fees charged for payday loans are usually a percentage of the face value of the check or a fee charged per amount borrowed. And if you extend or roll-over the loan--say, for another two weeks--you will pay the fees for each extension. In the market there are a lot of unscrupulous payday loans agencies that take very high interest rate from their consumers. In fact, some of them have mushroomed only with the motif of make money by taking advantage of consumers. Therefore, payday loans act has prevented lenders from charging more than 36% APR (annual percentage rate) on the short-term loans. The State Banking Department has sued to prevent payday lenders from operating in US, on the grounds that they violate this act. But a court injunction permits payday lenders to continue to operate in their state until the suit is settled. However, in the meantime lobbyists have pressured the Legislature to pass Senate Bill (SB) 30 with the idea of reducing fees to $16.25 per $100. On the other hand, payday loans lenders are defending them: "We are providing consumers with onetime financial aid for emergency expenses." Even some of them say that they are the payday loans lenders of last resort and they are giving credit to consumers whom no one else serves. But whatever their explanation is, their loans pose severe risk for borrowers. For that reason, it's very much important to consider exactly what amount you need for the payday loans. Besides, ensure it is an amount that can easily be paid back on the next paycheck. Also, try to fix the lender's fee before you strike a deal with someone. If possible, shop around a bit to find out the lowest fee in your area. |
