Why This Type Of Loan Is The Biggest Scam

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Payday loans are designed to create an ever-growing debt cycle.

I recently had an interesting exchange on Twitter. It all started when Twitter superstar Natalie Jacoby tweeted the following question to her followers:

As you can imagine, people had all sorts of clever reactions. Her one of these answers comes from her Tori Dunlap, founder of Her First $100K and a money and career expert. Dunlap replied simply, “Payday the interest rate on her loan is 400% for her.”

Dunlap was right. Payday He Loan is the biggest loan scam committed to unsuspecting borrowers. Here are some ideas to help you sort your payday loans and avoid predatory lenders.

they make it easy

Let’s say you need money urgently. It’s the middle of winter and the warm air is no longer blowing out of the furnace. I’m considering applying for a traditional personal loan from my credit union, but I’m in a hurry. On top of that, I worry that my low credit score will make it impossible to approve a loan. Then stop at your local payday loan store. They give money to anyone.

The people behind Partition are kind and make the whole process easy. Next he has two options.

• Write the full amount of the loan, including fees, on a postdated check, or
• Sign an authorization letter authorizing the withdrawal of outstanding amounts from your checking account

“But don’t worry,” they say. “We won’t cash the check or debit the account until the next payday.”

what is really going on

The interest rate is said to be 15%, which doesn’t seem too bad. In fact, it’s lower than the average credit card rate these days. What you need to look for is the Annual Percentage Rate (APR) which breaks down the true cost of the loan.

Suppose you borrow $1,000. Payday lenders charge a fee of $15 for every $100 spent. This is a simple interest rate of 15%. But here’s where things get dangerous. You must repay the loan within 14 days of your next paycheck arriving. Due to this very short loan term, the actual amount you pay for the loan (APR) is around 400%.

designed to fail

It’s no surprise to payday lenders that people who come to them for money are desperate. .

Sure, predatory lending rates bring in big bucks, but even more if the borrower is forced to roll over one loan to another. When that happens, the lender receives the interest and fees charged on the first loan, followed by the interest and fees charged on the new loan.

still good? The borrower must pay interest on the interest associated with the original loan.

According to the Consumer Financial Protection Bureau (CFPB), over 80% of payday loans are rolled into new loans within 14 days. And the deeper consumers get into the payday loan cycle, the harder it is to get out. The CFPB reports that half of all payday loans result in borrowers carrying the loan forward at least 10 times.

Alternative proposal

We’ve all hit financial hurdles that we don’t know how to overcome. it’s not a shame. However, if you need the money and need it quickly, there are some other options to consider.

friends and family

If you don’t need to take on a lot of debt and you’re sure you can pay it off quickly, let a close friend or close family member know about the situation. If they offer to lend you cash, write his IOU clearly outlining when the loan will be repaid in full.

credit card

If you have a credit card, please check the interest rate. Chances are, that’s just a fraction of the rate you’ll be paying your Payday lender. There is no reason to withdraw money from your bank account to make your credit card company richer.

credit union

If you are a credit union member, that means you are also a joint owner. So credit unions are more flexible when it comes to lending. Go inside and explain your situation and ask about short term loans.

There’s nothing redeemable about payday lenders, so it’s no surprise that they’re illegal in some states.

If things are going relatively well today, the best thing you can do for yourself is to start building an emergency savings account. please think about it. Depositing $100 a month into your account should be enough to cover minor emergencies before the end of the year.