Online VS In-Store: Which Are More Beneficial?

Courtesy of Fintechnews.org

There are different situations that may require financial assistance from external sources. When you have a peculiar problem and need money right here and right now, a small short-term loan is exactly what you need. However, there are several ways to obtain such loans. We are talking about numerous online and land-based outlets that offer you various credit options.

While both options may seem quite compelling, there are significant differences that you need to take into consideration when taking a loan. Any credit is an additional burden which will cut a sizeable amount of your income for some time. This means that you need to be cautious and choose your credit provider wisely.


Key Differences Between Online and “Offline” Lenders

Several aspects must be thoroughly analyzed before you can take a good loan. If you need to find a good deal, considering all possible options is a wise choice.


Customer Support

One of the biggest advantages of visiting an offline outlet is that you can see a person who will guide through the process face to face. You can ask all necessary questions right away and receive any additional information if you need it. The vast majority of such stores try to cater to their customers and provide exceptional service.

Online lenders will give you another set of advantages. For one, you don’t need to talk about your financial problem with another person. You can use a live chat or simply read an informative FAQ on the lender’s website.


Brokers and Direct Lenders

While there are massive benefits to taking a loan online, you must be very careful when it comes to borrowing money. Some websites will offer you good deals and try to lure in with big promises, but in reality they are simple brokers trying to work as middle-men in this industry.

Offline stores usually represent the organization that will give you money meaning that you will be able to talk with an actual representative of your direct lender and receive all necessary information without all that wrapping made of ads and promises.


What about Licenses?

Whenever you visit a website, you should check whether a lender is licensed and can operate in your own state. This is something that many people forget when applying for a credit. Some companies have nationwide marketing campaigns, but serve only a limited amount of users. Checking the license is one of the first steps that you should make.


Benefits of Online Short-Term Loans

While there are many positives in doing your financial tasks without leaving your home, other benefits can be even more impactful.

  • Spend less time. You won’t need to waste hours on queues in stores and spend time travelling around and waiting.
  • Easier approval. Many companies are competing in a very aggressive environment and try to make the whole process of borrowing as comfortable as possible.
  • You have information. There are tons of reviews and testimonials in the internet. Use this knowledge to your advantage, compare prices, and make right choices.

Disadvantages of Borrowing Online

Benefits may impress you and force you to start contemplating about taking a credit right now, but you should be aware of cons that are also quite noticeable.

  • You will pay more. Most online short-term deals are expensive and will significantly burden you and your family. Think carefully whether you need it.
  • Overpaying for fees and interest. Even if you want to close the loan before time, you will still have to pay (in most cases) for fees and interest.
  • Some websites are pure scams. Remember that reliable companies do not ask for your financial information. In fact, they will often only ask for the credit card number to transfer the money. However, some scams mimic trustworthy websites and try to steal credentials from their users.

Scams Can Be Avoided

The latter is very dangerous and, sadly, more frequent than you imagine. There are lots of ways for social engineers to try and steal your data. They will create websites that are copies of trusted web portals and bombard you with invitations through various online ads. Knowing how to avoid a scam is a handy skill for anyone.

Here are some signs that could indicate that you are on a fishing website:

  • Problems with grammar and layout on the website. A sloppily made web page is your first warning. A reliable company will invest enough in their online infrastructure to not have such issues.
  • Advance payments. Lenders do not need you to pay any fees and taxes upfront. Whenever you see an option like that, go away.
  • Interest rates are too good. Lenders do not run charities. They want to make money. If a website offers interest rates that are way below the market median, you should be very careful.
  • Readiness to give you money. If a website says that they will approve your application within hours, something fishy is definitely happening behind a pretty web page.

If you try to avoid website that can be described with any of the descriptions above, you will jump over pitfalls that scammers meticulously set up all over the internet. You can also use other tricks that will prevent you from being scammed.

Here are some of them:

  • Research. Reading articles and reviews is a good start. Another important thing is to carefully examine the domain name. EasyLoan123.net.org is a very strange address that a good company will never use.
  • Don’t be afraid to be annoying. Inquire about the full business name of the potential lender and check their licenses. Remember that you can always check the license officially.
  • Do not share personal data. Any sensitive information should be exchanged with only trustworthy companies. Make sure that you researched and inspected the website before sending any personal data.

Benefits of “Offline” Short-Term Loans

We did not forget about land-based outlets that also offer quick buck to any American above 18-21 years. However, you need to be careful when taking a credit in an offline mode as well.

Here are some benefits:

  • You can inspect their business. A quick glance at the office and you will understand whether you entered a shady shack or a respectable place that can offer high quality financial service.
  • Immediate support. You don’t need until a technician or a manager is ready to answer your question. Ask right away and receive all important information immediately.
  • Assistance from personnel. You will be able to apply within minutes and quickl fill out all necessary forms.

Disadvantages of Borrowing Online

Borrowing from a company that has a network of outlets is generally a better idea since only established franchises and huge companies can run large scale operations with multiple offices all across the country. However, there are still some problems:

It takes long to get a credit. While you can get a credit with 2-3 clicks on a website, you will actually have to do some work before you can get a credit in-store.

There are several limitations that you will have to deal with. You will get less interesting options if you are not a resident of a specific state.


Choosing the Right Option

It is critical to remember that a short-term goal is something that you can use to your advantage. However, a bad choice will lead you to problems that are hard to anticipate.
Here are some things to consider:

  • The true cost of a credit. There are some loans where you will pay up to 400% of the amount you initially borrowed.
  • Creditworthiness is yet another important factor to consider. Some companies are less kind to people with debt while others will gladly offer you interesting solutions.
  • Also think carefully about turnaround periods. You will want an optimal period that will give you an acceptable balance between the interest rate and timeframe.
  • Regulations vary from one state to another. There are 10 states including West Virginia, Vermont, New York, and Maryland where lenders must comply to a special interest cap.

The Main Takeaway

Both options can be acceptable when you are searching for a source of a reasonable credit. You just need to be careful and select your lender wisely.

PayDay Loans Start to Pile Up? You Can Do Something About It!

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Imagine that you owe over $5000 to several payday lenders. This could be a devastating situation for some people. Usually, the avalanche of debts starts with a small loan that you don’t know how to pay off. At some point, periodic payments may start eating up to 100% of your income (maybe, even more). However, you can get out from this seemingly eternal cycle.

There are people who have multiple debts. There was a case when a single man had 24 (!) loans. He didn’t know what to do.


Payday loan shops are popping up here and there. Nonetheless, the problem is that many people do not know how to use payday lenders’ services. Companies only offer specific options and products. It is up to a client to decide whether they want to purchase that product. Sadly, many people do it without reading between the lines.

People also started to pile up debts due to an abundance of online outlets that offer quick cash without even forcing you to go out. The cycle starts casually. You may need a small amount of money to pay your utility bills on time or change tires. However, a single loan does not save you. In fact, you will have to pay back but you are still short on money. In fact, you may have even less money due to commissions. This is why you must calculate whether you will be able to pay off debts.

Over 30% of people who want to restructure their debt have at least one loan that comes from a payday lender. The vast majority (over 70%) have more than one payday loan that burdens them. The average number is quite frightening. An average debtors owe over $3.400 to 3 or more lenders.

However, there are some actions that you can take in order to save yourself from falling even deeper into the debt pitfall. One of the solutions is to get rid of many small payments and consolidate the debt into a single one. Your new interest rate will be determined by your credit score. People with lower credit score will have to pay higher rates. There is nothing anyone can do about it. Note that breaking a cycle is more important than paying a little extra. Trying to pay back to a bunch of lenders on different days of the week is stressful and bothersome, but a single debt (even with a slightly higher overall interest rate) is much easier to pay.


What worries the most is that people often skip important lines in the contract when they take money. Many do not even notice the real amount of money that they will have to pay. Lenders must point out the total cost of borrowing and they do, but that line can be hidden somewhere in the document in a place where you won’t even notice it.

Another good idea is to ask for money from a non-profit credit counselor. They will help you to enter negotiations on the right note and reduce the overall cost of borrowing to a less frightening amount. The problem is that consolidation of debt is a process that requires all lenders to agree to give up their personal interest and consolidate. The negotiation process can be complicated.

One of the best advices to people who want to get a credit is to not take too much. There are people who own money to payday lenders, but their overall debt could as high as $50 thousand with a large portion of that sum being formed by other insecure debts. Credit cards are the real plague of the society and most of people in America have problems with credit cards.

Another good advice to all potential debtors is to start building a small emergency fund right away. Taking a payday loan now and then is not a problem if you can control your expenses and have a backup cash reserve that will protect you from borrowing too much. Just don’t ever get in a situation when you take 2-3 loans simultaneously.

Payday Lenders Are Happier Under Trump

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Thousands of payday lenders all over the US are happily rejoicing since recent decisions made by the Trump’s government have made their lives that much easier. Businesses that basically destroy families financially have lots of benefits provided by the government and the Republican Congress seems to be quite happy about it.

A recent joint resolutions were recently introduced in the senate. The main generator of the idea is Lindsey Graham who represents South Carolina. The new legislation will not only allow lenders to work more actively in the field, but strip them off various burdens that affect short-term credits. Limitations and restrictions were imposed previously be the CFPB, but their rules are now undone. In addition, they cannot try to create something similar in the nearest future. This makes all people more vulnerable to predatory actions of small payday lenders.


One of the rules that protect people from lenders enforces the necessity to check whether a person can actually pay for their loans. This regulation was supposed to be shipped in January, but was held back by the head of CFPB Mick Mulvaney who is also one of Trump’s appointees.

The law is under reconsideration process, but it does not seem that the government wants to make it happen. In fact, many decisions from CFPB are quite predatory and allow many lenders to act even more aggressively which is not something that you would expect from a caring government. The previous government under Barack Obama was not so kind to the payday loans industry.

It is not only about a single bureaucrat and a senator, but about a whole bunch of people in the government who seem to forget about their duties when it comes to protecting law abiding citizens from predatory businesses. In fact, over 40 senators from the Democratic party decided to write a special letter of concern to the director of CFPB. They urged him to continue working in the direction of bettering the industry and creating stricter regulations that businesses would have to abide.

The problem is that legislators do not have to fight for this rule to happen. A simple majority will tip the scales in any direction. This is something that senate is struggling with – to make things actually happen. The new resolution from the South Carolina senator. It is important to note that senator who decided to abstain from signing the letter will be re-elected in states that were won by the current president. This seems like a very sad notion.


There are many payday lenders who actively participate in lobbying for their industry. Their efforts do seem to pay-off as Republicans consistently try to attack regulations that the CFPB are trying to implement in order to restrain the industry that grows rapidly and throws more and more Americans in the vortex of financial problems. The Open Secrets data reveals that the amount of donations of lobbyists spiked massively after the passage of the infamous Dodd-Frank Act about 8 years ago.

Over $9 million was transferred to various members of congress from payday lenders with $7 million of that amount going in pockets of republicans.

The CFPB was supposed to focus on creating a healthier environment in the industry and helping both consumers and lenders to level the playing field and make the whole market fairer. This was the main priority of the agency after Mulvaney occupied the director’s seat. However, nothing was done to actually protect people. In fact, the results of his activities were quite the opposite as businesses were allowed to increase the pressure on consumers.

There were several positive steps made by Mulvaney, but the way he freed several huge companies from being investigated is baffling. Just a couple of days before releasing his memo where he promised to work hard to protect people, he decided to drop a lawsuit that was made against several companies that charged over 1000% for their loans. You didn’t misread the number. One thousand percent.


While Mulvaney himself rejects all claims that he is working to protect interests of predatory businesses that sponsor his campaigns, his actions usually speak louder than his words and he is a true protector of lenders.

The industry is a huge pie with lenders generating crazy profits. The industry managed to pile up $9 billion in profits during the last year. This number may grow even bigger soon enough with 12 million Americans using payday loans on a regular basis.

While many payday lenders try to reason that their business is just something that fills the void left by banks and bigger financial organizations. Consumers do know that their work is harming the market and the society. The vast majority of borrowers are unable to pay off their bills and go deeper in the debt hole. For some reason, Americans cannot just default and try to take more money to repay the bill and fall in yet another hole. 4 out of 5 loans are renewed.

The CFPB was created to make sure that the market is safe for consumers and that all act according to a set of rules that minimizes potential damage. Nonetheless, the Trump’s administration seems to forget about it.

The Problem of High-Cost Payday Loans

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Politicians and public personalities alike call for proactive actions towards decreasing the burden from loans. Lending has become “predatory” as many point out. For some households, even the poverty premium on essential things are quite bothersome. Searching for a reasonable credit becomes increasingly harder with each year. The recent study by the several institutes shows, debt becomes a huge problem for the poorest. Roughly each 2nd poor household (about 20% of all households in America qualify as poor) have to spend up to 30% of their overall income to cover debt.

This situation is quite tough and requires attention from both legislative institutes and people who consider borrowing money. The debt burden can be unbearable and selecting the right source of credit is quite important.


Stress Inducing Loans

The high price of a credit pressures all people despite the implementation of the payday loans cap. People who cannot afford taking a high-cost credit have to continuously work against the debt and reborrow funds to pay for previous loans that were supposed to be short-term debts. Constantly trying to find a way to cover monthly payments and still paying an amount even higher than the original loan.

One of troubling symptoms of this situation is that child poverty is on the rise and has been rising ever since 2010 with roughly 35-40% of children in some states of America qualifying as poor. Millions of people all over the America are in big problems in regards to debt. All of them are behind their payments and have to ask for legal advice and search for a saving hand in specialized organizations. The discussion around this subject is gaining momentum, but there are lots of problematic factors that should be addressed in order to fix the debt crisis that currently overwhelms Americans.

One of better news in regards to this topic was recently showcased in many magazines. Michael Sheen, a famous actor and showman, decided to kickstart an independent organization to help out people in debt and search for better solutions to the problem in general. The End High Cost Credit Alliance is a special union of various charities and reliable fair lenders who try to solve the problem.

This is a good move on the star’s part, but we need more movements like that. Fair, cheaper credits will help on many fronts including the mental health of borrowers. Multiple studies showed that being in debt significantly increase stress. A high-cost credit is not just a simple monetary problem it creates a burden pressuring financially, psychologically, and even physiologically.

Payday loans are used by over 12 million Americans annually. Some of these people are taking several different credits at once. The correlation between borrowing money and the state of mental health is frighteningly telling. Over 38% of high-cost credit users report much poorer health.


High-Cost Credits Must Be Regulated

There are several proactive actions that have been taken by people in Washington DC, Colorado, and Missouri. In fact, 15 states implemented various programs to protect citizens from predatory lenders and create a healthier environment for those who desperately need financial aid. Colorado decided to double down on the issue and dramatically tighten the regulations regarding high-cost credits. Politicians of Colorado call for similar moves from the US government. Even adding a simple another verification step that prevents lenders to give money to borrowers who cannot pay was a huge step in the right direction.

Steve Helms, a senator from Missouri, says that fees and interest rates should be capped at 35% of the total amount of a loan instead of 75%. At the same time, the interest rate also needs capping as rates go higher and reach 400% per year.

The problem is that there are government bills like “Protecting Consumers’ Access to Credit Act of 2017” that will effectively undo all positive efforts from state governments.

Some Legal Advice for Borrowers

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Taxes are quite annoying for all of us. Many would love to live in a world free of taxes. Sadly, such world would be incredibly imbalanced and unfair. This does not mean that you must blindly abide all rules of the system and increase your debt just because. In fact, tax laws are flexible and allow you to significantly reduce the total volume of debts. Here are some tips that will help you to avoid unnecessary expenses when receiving a loan.


Don’t Give the Government a Loan Free of Interest

Some money can be taken back in case you have big annual tax returns. You will have to fill out the W-4 and the way you do it determines a lot of things including the amount of money that you pay as taxes. However, when a certain threshold is exceeded, you may return excess pay.

This process may seem really attractive and cost-efficient, but it also opens up some avenues for loaners to increase your debt. When you return taxes and get your sweet cash back, the interest on all of your debts keep piling up. This can be avoided by simply filing out yet another W-4 with more information regarding your current financial situation. Define your deductions appropriately to extract good benefits.


Use Deductible Tax Money to Pay for Non-Deductible Interests

Some forms of interest are deductible. Examples are your mortgage, various types of student loans, and other. The majority of cases require you to carefully describe potential deductions in order to get it. However, even non-deductible interest can be covered in case a new tax law is implemented. Depending on your current debt structure, you will be able to significantly cut down the cost of a loan. At the same time, certain types of credit interests are not deductible at all.

If you have money that you acquire by deducting specific interests, you should use it to cover non-deductible ones. This will allot you to avoid expenditures and keep the bottom line without a single touch of red ink.


Student Loan Interest

After several changes, tax laws became a little bit more forgiving and allow you to claim the interest on your existing student loans. It is possible to get back up to two and a half thousand dollars. This is a huge sum of money that will definitely allow you to deal with debt much easier.

Student laws are quite volatile. Conditions and rulings change every now and then. Depending on the nature of changes, you may be qualified for significant returns that will restructure your whole debt. It is imperative to regularly consult with the IRS in order to learn about possible ways to work around your student loan. Do not think that the IRS knows what is best for you.


Debt Settlement and How It Affects Tax Laws

Loaners often decide to offer a settlement to their borrowers. This may happen due to a plethora of reasons. Sometimes, loaners want to get their money faster even if it means a significant reduction of their gains. In other scenarios, such moves allow loaners to deduct taxes. The difference between the amount of money owed and factually paid can be presented a taxable interest. Too many settlements over the course of several months can be ineffective.

Insolvency is one possible solutions this situation. You just need to declare yourself insolvent by using a 982 form. This will notify the IRS about your new status. By doing so you will avoid the necessity to fill out forms on your savings generated by settlements. Depending on the overall structure of your debt, you may save a considerable amount of money.


Don’t Let Your Credits and Deductions

Tax Laws are not set in stone and can be changed. This is very important when it comes to claiming loans for your relatives or friends. For example, the level of income can dramatically change tax return rates. Some people are eligible for earned income loans which allows you to increase the amount of potential tax returns by thousands dollars. There are lots of nuances and intricacies regarding loans and taxes. We highly recommend you to consult with an experienced seasoned veteran to learn everything you need about taxes and loans.


Advantages of the Extensive Tax Knowledge

There is nothing wrong with paying taxes. They help to maintain infrastructure and develop the country, but we also need to know how to pay them wisely without overpaying for anything. This is how you will be efficient with your loans. Whenever you engage in financial activities, you should always consult with a trained lawyer.

A Faithful Payday Lender for Catholics

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Just in 2016, a group of people from the community of St. Vincent de Paul Diocese of Columbus decided to focus on creating a completely new way of helping out people in need. Even a small expense can easily push you off the track and even ruin your life if there is no reserve. The idea of a loan administrated by people of faith and provided to those who require a small financial aid right here and right now was conceived after long discussions and years of planning.


Catholic Payday Loan Details

The first experience was more than successful and 5 other counties decided to pick up on it. The plan is to expand even more and provide help in all 23 counties at some point in the nearest future. If everything goes according to the plan, thousands of people will have a place to go when they direly need money.

There are several key features of this microloan that should be noticed:

  • The borrower may receive up to $500;
  • Very low interest rates;
  • The borrower may take a loan for up to 15 months.

Credit history is mostly ignored.

Compared to some interest rates that may be as high as 500% annually in some states (Ohio is one of examples), these conditions seem to be more than simply attractive for the vast majority of borrowers. If you are in a desperate situation and require help, you can easily apply for a loan and return it gradually. Payments will be structured in a way most comfortable for the payer.

One of key moments here is that your credit history improves as you pay back to the community meaning that some people could use this service to improve their chances of getting a bigger credit eventually in case such a necessity occurs. One of goals is to allow people to improve their relationships with various lenders and banks.

This community administrated operation is a great way of reducing the burden of interest rates for those who simply cannot afford to pay them. There are thousands of people in America whose financial situation is astonishingly fragile. Paying even a single extra cent could mean trouble in their scenarios.

The core idea behind this new service is to reduce poverty and introduce new effective ways to deliver money to those struggling to make ends meet. Driven by kind people and faithful enthusiasts, this service starts gaining momentum and sparks excitement in many regions of the US.


The Future of Catholic Payday Loans

The tomorrow does seem brighter for this idea. It has a robust structure supported by the community which assumes all risks related to each loan allowing the borrower to breath freer. Simultaneously, people do not have that gnawing feeling that they are being robbed by powerful banks and other financial institutions. Everything happens within a much smaller community interested in helping you out.

Scores of people face difficult times that do not allow them to fulfil even the tiniest of goals like changing tires on a car or fixing broken windows. This new alternative to standard payday lenders who are preying on weak is something that every county in the country should have. Hopefully, the day when this will be available everywhere will come soon.

Some Facts from the History of Payday Loans

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Payday loan is a quite young phenomenon. It appeared in the 20th century, but the industry of payday loans has developed a lot since that time. Every day thousands of people step over the sill of a lending organization to take a loan.

It is hard to say when payday loans appeared in the USA. But this phenomenon seems to have roots in 1956, when the Senate Bill was issued. This Bill allowed people in need to take small loans that had been forbidden before. Then, 30 years later, in the 1980s people could use services of pawnbroker’s shops and so-called loan sharks. Today payday loans are really popular among those who are short of money.


Who are “loan sharks”?

Loan sharks are lenders who provided short-term loans. It should be mentioned that this kind of loan was not a really good option for people who needed money as the interest rates were very high. The study conducted by Consumer Federation of America in 2004 showed that the interest rates of loans provided by loan sharks could have come up to 1000 per cent. Of course, many people could not repay their debts especially at the time of the Great depression.


First payday loans

First payday loans appeared by the end of the 20th century,but, unfortunately, they resembled shark loans in some ways: new lenders yet again provided their customers with high-interest cash loans in exchange for post-dated checks.

At this time payday loans were called “check cashing services”. But this phrase did not fit the state usury laws and it was decided to substitute it by the word “loan” to avoid breaking of the law. Payday lenders usually provided additional fees for every $100. These fees ranged from 10 to 20 per cent for every $100.

Deregulation of banks that took place in the end of the 1980s affected small banks and forced them to vanish. This deregulation caused the appearance of organizations that offered payday loans. Moreover, lenders had to change loan procedure after deregulation to fit the terms of new laws.


Payday loans became more popular

In the beginning of the 1990s, Allan Jones, an American businessman, founded an organization that provided short-term loans. In 1996 these short-term loans were legalized, which contributed to the development of Allan Jones’s business. For some years this organization has grown and became the largest company of this type in the USA. At first, the company had about 500 offices, but now it has more than 20 thousand offices around the USA, and their total income equals to 45 billion dollars per year.


Payday loans Online

With the appearance of the Internet in the 1990s, many businesses started to use it to offer their services. And the sphere of payday loans is not an exception. After the rise of the Internet the number of organizations that provide payday loans has increased as well as the number of people willing to become their customers. It can be explained by the fact that many people do not have to visit any lending office personally, because sometimes they neither have time for it, nor desire to talk to an agent about their financial state.


Competition

Today the industry of payday loans involves a lot of controversy. There are supporters as well as opponents (i.e. the CFPB, an organization that argues against short-term loans), also, there are companies that offer some alternative ways of getting money. Some of them, for example, provide a possibility for a worker to get their salary at any time their need it. In addition, many companies direct possible borrowers to some special organizations that provide lower interest rates.

Payday loans appeared not long ago. The “ancestors” of modern lending organizations are “shark-loans”. They led their business unfairly and people remember it. Because of this fact, many people are biased against lending organizations and do not believe them. But the times have changed and the way lending organizations provide their services has changed, too.

Florida Is Going to Increase the Maximum Sum of a Payday Loan

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The lawmakers from Florida want to change the rules of payday loans. They want to increase the sum people may borrow from the organizations that provide payday loans. Still, many people are arguing over this initiative, thinking that this new law may bring more harm than good.

Payday loans have always been a stumbling block for common people and politicians. Many of them believe that payday loans are a good source of money for those who need it immediately. On the contrary, other people think that payday loans may lead you to a debt hole. They say that by taking a payday loan a person starts an endless circle of reborrowing.

The lawmakers from Florida do not think so. They have introduced a bill that presupposes the increase in the amount of money that people can borrow as a payday loan. So, what are the pros and cons of this bill?


Pros

As it has already been said a payday loan may be a good way out for those who are short of money but really need it right now. In addition, people who cannot take any credit from conventional banks because of a low score or other reasons find this option really suitable.

If the legislation of Florida approves the new bill concerning payday loans, these people will have a possibility to take more money. The maximum sum people can take now is 500 dollars, but it may increase up to 1000 dollars. Moreover, the terms of repayment will also rise from 30 days up to 60 or even 90.

Now the legislation of Florida forbids issuing loans to people who have any other outstanding loan or to who have repaid their last loan fully in past 24 hours. Lawmakers say that they are going to preserve these restrictions for taking a payday loan in the new bill. So, these restrictions may prevent people who are not able to repay from taking a payday loan and somehow to ensure the debt repayment for the lending organizations.


Cons

Today the maximum sum of a payday loan is 500 dollars. If a person borrows this money from a lending organization, this person will have to pay total 50 dollars of fees, and the final sum of repayment will be 550 dollars. You may think that borrowing 1000 dollars, you will have to pay 100 dollars of fees that is quite logical, but in fact, the bigger sum you borrow, the higher your fees are. It means that if you take payday loan in amount of 1000 dollars, your fee will be 216 dollars.

It is said that the new bill requires lower annual percentage rate for payday loans. Now this rate is 300 per cent, but the bill will provide 200 per cent of annual percentage rate. We can treat it as an advantage, but many experts believe that, on the contrary, this measure can attract more people to use payday loans and, thus, increase the number of people who are dependent on loans.

Experts believe that the industry of payday loans gets more than 300 million dollars in fees from their customers. If the maximum sum of a loan is doubled, the amount of fees charged may also increase more than twice. And it means that the industry of payday loans will expand. Many researchers do not believe that this expansion may be a good sign, because in this situation these lending organizations acquire more customers and more people will live on a loan. And it may harm the economy of the country.

As we can see, the new bill has its advantages and disadvantages. The increase in the amount of a loan may be a good thing for people who need money and who are able to repay their loan. But people who do not have enough money to pay their loans back are risking falling into a trap or reborrowing. It means that having no money to repay their debt, they would have to go to another lending organization to take another loan and repay the first one.

Is the Unbanking of America happening?

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The issue of payday loans is widely discussed by many people and in many books as well. One of such books is The Unbanking of America written by, a professor from the University of Pennsylvania, Lisa Servon. The author lets us see the banking system from inside, and at the same time she delivers portraits of businessmen, who react to the unbanking of the USA.

Let’s imagine that you have a low paid job and are living from paycheck to paycheck. You might have a poor credit story that does not let you borrow some money from a bank. And finally your car that you use to get to your job every day breaks down. It is obvious that you do not have enough money to fix the car and to pay your rent; you have to choose only one option. What would you choose? Ariane, a heroine of the book The Unbanking of America by Lisa Servon, was in exactly the same situation.

Ariane believes that the perfect solution in this case is to take a payday loan. And Ariane is not alone in her opinion that the payday loan is the best option when you urgently need some money, about twelve million of Americans are in the same mind.


Who uses payday loans?

As it has already been said, payday loan is a good way out for people who have some unexpected expenses. They might include money to repair a car, money to pay for a medical bill and money to pay a rent. It is stated that people, who are ready to take a payday loan are female or African-Americans, who have low credit score and whose annual income is less than thirty-five thousand dollars. These people are more likely to take a payday loan rather than to use their credit card. They believe that taking a payday loan would be cheaper than to use a credit card.


What is the Payday Lending Business Model?

Some people think that payday loans are evil and bring profit only for the lenders, but, in fact, many specialists confirm that the sphere of payday loans is driven by consumer’s demand.

Lisa Servon worked as a check cashier in one of the organizations that provide payday loans. She admitted that people liked that such organizations are more transparent and do not make you pay any extra fees as conventional banks can do.

In addition, a lot of borrowers complain about high cost of payday loans. The cost of payday loans is determined by the risk that the lending organization has. It is the risk of default on payment. An average default rate for payday loans is twenty per cent. It is very high in comparison with the default rate of conventional banks that is about three per cent. But we should know that about two thirds of the money payday lenders collect is used to repay the overhead on payday loan stores. How to repay?

Experts say that about eighty per cent of people who have a payday loan cannot manage to repay it on time. We might expect that these people curse the very day they stepped over the sill of the lending organization, but actually their opinion is absolutely the opposite.

Although Ariane had not managed to repay her debt on time, because she needed money to pay her rent and to buy food, anyway she had her car fixed and she still had her job, and soon she was able to repay her debt.

In addition, Lisa Servon highlights that the process of taking a loan in conventional banks takes a lot of time. You have to go to the bank with all the required documents and then wait for your loan to be approved and only after that you can take the money you need. But when you lack time and money you cannot wait for so long.

Nowadays, when the banking system is not transparent and when bank loans are not available for everyone, more people feel positive about taking a payday loan. Even if payday loans are not suitable for everyone, they can be a source of money for thousands of desperate people.

Read more:

The Unbanking of America: How the New Middle Class Survives – PW
THE UNBANKING OF AMERICA – KIRCUS
How the Consumer Financial Protection Bureau’s Payday Loan Rule Hurts the Working Poor – CEI

Collection Agencies and Your Debts

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People who do not pay off their debts risk to become clients of a collection agency. But sometimes such an agency calls you up and asks for repayment of debts that you do not even have. What can you do in this situation?

Debt is always an unpleasant thing. We are always concerned about them and try to pay them off on time; otherwise a bank may refer to a collection agency that will force you to pay your debts. Unfortunately there are cases when collection agencies ask people to pay debts that do not belong to them. The reason might be a mistake of a bank or a collection agency itself. Anyway you have to know how to deal with collection agencies.


How does a collection agency work?

If you do not pay your bank debt during one hundred and eighty days from the moment of its receipt, the bank will hire a collective organization that has to collect your debt. And usually after some more months the bank sells your debt to a collection agency. In this case, when the bank has sold your debt, it does not have any relations to your debt anymore. And because of that a collection organization might take from you more money than you should have paid to the bank to make a profit from buying this debt.

It should be mentioned that not only bank debts can be transferred to a collection agency. Any debts you have including medical loans and utility debts can end up in such an agency.

After the information about your debt comes to a collection agency, a notification about it will appear in your bureau. This notification can significantly influence your score.


How can activity of a collective agency influence your score?

As it has been mentioned, once a collective agency receives your debt data, your bureau acquires a status of a “collection account”. These harmless at first sight words can greatly affect your score, and the degree of this influence depends on the size of your score. The higher your score is, the more points it can lose.

This information about the status of your account remains in your bureau for seven years. It should be mentioned that those seven years start only after one hundred and eighty days of non-payment, or after a collection agency receives the information about your debt.

The only way to get rid of this status is to make a collection agency remove your debt after paying it. You may ask this organization to have a “pay for delete” deal. It means that you agree to pay the sum that a collection organization wants you to pay, and after the repayment is done they remove a notification “collection account” from your bureau.


What can you do to change the situation?

If you are sure that the debt a collection organization wants you to pay is not yours, you can write a letter to it within thirty days from the first collection activity confirming that you do not have any debts. If the organization does not provide any proof that you owe the debt, the information in your bureau will be renewed and all the collection activities will be stopped.

In the situation when the agency provides proof that you actually have the debt, but you do not agree with it, you can search for help in CFPB. Consumer Financial Protection Bureau is an organization that helps people in the situation when their financial rights are violated. This organization controls the work of banks, credit unions and other financial companies and ensures compliance with financial laws that protect you from fraud and abuse.

So, you have to remember that if you have any debts you have to pay them on time unless your debts may be bought by a collection agency. And this purchase can bring you a lot of troubles. You will receive unpleasant calls from the agency workers asking you to pay your debts off, and in addition you will acquire the reputation of a “bad borrower” and that can cause problems with your future loans.