Payday Loan Companies, the Dark Side of the Lending Business
Pursuant to federal and state law, lenders are required to disclose the Annual Percentage Rate (APR) for the consumer loans they offer. (An APR refers to the interest rate charged over the course of a year, and is calculated by multiplying the rate for a payment period, by the number of payment periods in a year, then dividing by the principal balance.) APRs serve as a good benchmark when comparing loans that offer different terms and conditions. You think the default interest rate on your credit card is bad? Most payday loan companies require you to pay $15-30 more when you pay them back in a week or two. While that doesn’t seem so bad at first, in reality, $15 interest on a $100 one-week loan is a whopping 780% APR! ($15 interest for one week x 52 weeks=780/100=7.80=780%.)
Of course, payday loan companies aren’t quick to offer consumers this information. In fact, payday lenders are frequent violators of advertising regulations – namely, the complaints have been that the APR was either not displayed at all, or not displayed predominately enough. On the contrary, payday loan companies are quick to offer that you renew and extend your loan when it becomes due. What they don’t tell you is that by doing so you will incur additional fees and associated interest, and fall deeper into a vicious debt cycle. For this and many other reasons, the Federal Trade Commission advises consumers to be cautious of payday loans.
To be sure, 13 states outlaw payday lending entirely, and others have regulations such as usury laws in place, that in effect restrict the maximum APR that any lender can charge. And in October 2007, a federal law was passed that caps lending to military personnel at 36% APR. Nevertheless, payday lenders frequently ignore usury limits and continue to charge higher interest rates. Consequently, payday loans have a default rate of 10-20%.
Why do Payday Loans Remain so Popular Then?
Despite the risks associated with payday loans, consumers continue to take them out for a variety of reasons. Number one, they are easy to get approved, as they are secured against a customer’s next paycheck and don’t require a full credit check as most other loans do. Unfortunately, due to this fact, the most common users of payday loans are so-called “high risk” borrowers, typically low-income people who are otherwise unable to secure lower-interest-rate credit. Secondly, the fact that they are short-term and generally for small amounts leads people to believe that they aren’t taking on any debt that they can’t immediately pay back.
A Payday Loan Debt Settlement Can Get you Out of Debt Without Bankruptcy
Just like with any other debt settlement program, the first step in payday loan debt settlement is figuring out how much you actually owe. You can also start by obtaining a free copy of your credit report from one of the three national credit report agencies, Trans Union, Experian and Equifax.
The next step is to begin negotiations with your creditors. Our attorneys are skilled at negotiating for large reductions in your payday loan debt, without the need for bankruptcy. Our attorneys can also settle your other debts such as credit card debt, auto loans, mortgage debt, etc. And if you’ve been sued, we can defend you as part of our program. Contact us today for a free evaluation and consultation with a lawyer.
Kevin Fallon McCarthy
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