The Importance Of Understanding The Implications Of Payday Loans
With the rapid expansion of the payday loans industry in the U.S, it has become increasingly important for lawmakers and government leaders to come up with regulations that will protect the consumer. Currently, over 20,000 payday lenders are operating in the country using both storefront locations and online platforms. The industry’s growth is attributed to the increasing number of American citizens living in between paychecks. They are therefore looking for ways to supplement their income before the arrival of the next salary.
To understand the benefits and shortfalls of payday loans, we must first know what they are. A payday loan can be defined as an unsecured loan that is reliant on the borrower’s next paycheck as collateral. They are usually characterized by high rates of interest and extremely short terms for repayment. In the U.S, a payday loan is paid back between 2-4 weeks. This two are the defining characteristics of a payday loan and contribute to a borrower’s ability to pay it back. They also affect the annual percentage rate.
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Several states in the U.S have completely outlawed payday loans such as New York, Vermont, and Maryland, while others have stringent restrictions on this form of credit. Regulations on payday loans near me arise because of the following factors:
- Unscrupulous lenders are implementing illegal and aggressive practices to collect loans past their due date. Such methods include usury, debt rollovers or even the use of physical force.
- Because of the high-interest rates and short repayment terms, borrowers are rendered unable to pay. This increases the instances of bankruptcy and massive debt among the consumers.
This industry is regulated by the Consumer Financial Protection Bureau. American states also legally pursue payday lenders who contravene the set laws and regulations.
Most consumers opt for payday loans as opposed to traditional lines of credit because the turnaround time is very quick and can take less than 24 hours. However, before applying for a payday loan in the U.S, it is important for you to consider the reason for this request. This is because payday loans are not suitable for all difficult financial circumstances. This is why you need to consider the following factors before evening requesting for one:
- Proper understanding of your schedule for repayment
Having a sufficient knowledge of how you are supposed to pay back the money advanced to you is a fundamental part of any form of borrowing. This is because it helps you to understand how much you are supposed to repay, the repayment term, any fees associated with the loan, and the implications of not paying back.
This helps you assess your financial situation and your ability to pay. Therefore, you will be able to determine if you need the cash advance.
- Purpose of the loan
Be sure to take up a loan for emergency purposes only. This should be after you have exhausted all other alternatives without finding a solution. Applying for a payday loan for the purpose of rebuilding your credit score is not advisable. The reason is that due to the high interest rates, this financial tool is not suitable for credit building.
- Presence of existing loan
This may imply that you are taking up one loan to repay another. If you have an existing loan, make proper arrangements with your current lender on how to proceed. The arrangements can be in the form of extended deadlines, stretched-out payment plans, or the advancement of another line of credit.
Payday loans in the U.S should not be used as a long-term financial solution, but rather as a remedy for short-term emergencies. Before receiving a cash advance, payday advance near me usually require a few documents that act as proof of employment, identification, attainment of legal age, as well as an active bank account. As a consumer of payday loans, it is important to have adequate knowledge of the industry’s regulations, practices, and the service providers. This will allow you to protect yourself from a continuous cycle of debt.