Payday loans are short-term cash loans that are offered by private lenders, but you’ll find payday loan companies in every state. These loans can be expensive and may not be the best choice for those with poor credit or bad luck.
The APR (Annual Percentage Rate) is a common term used when calculating your monthly payments on these loans. Pay day loans usually have an APR of 362%, and some people have had their APR go as high as 1,000%.
If you don’t think you will ever need a payday loan again, you might want to reconsider. It’s easy to get one with no credit check, but it is a great way to ruin your finances if you can’t pay back the money owed.
Here are the things about payday loans that can hurt you.
1. Short Term Loans Are Only Available for a Limited Time
Most payday lenders require you to sign a contract that says you agree to repay the loan in full within 21 days. If you don’t, they can revoke your right to borrow from them next time.
Some banks allow you to roll over your existing debt into another loan, but you have to make sure you are eligible for this option before proceeding. Most payday lenders don’t offer this service, so you could end up paying much more than you anticipated.
In case if with the use if the Money-Wise a person will get to know that they have some funds available. In case if it seems that the funds are not sufficient then they can plan to take the pay day loans to satisfy their needs. The decision taken at the right time will surely give good amount of the returns to people.
2. The Interest Rates Can Be Extremely High
Although interest rates vary widely among different states, many payday lenders advertise interest rates as low as 5%–15%. This means that even though you borrowed $100 today, you would actually have to pay back $145 in two weeks. That’s a lot of interest!
The actual rate you will end up paying depends on your ability to pay back the money. A lender who offers a lower interest rate is trying to lure you in, while a higher rate is better for everyone involved. Your best bet is to shop around and see what other lenders offer you.
3. There Is No Way to Avoid Repaying the Loan
Lenders use a number called a “fee cap” to calculate how much they charge you per month. The fee cap is the maximum amount they can charge you each month. They also add a small percentage to cover administrative expenses.
This means that even if you borrowed $100 each month, you still wouldn’t be able to borrow enough money to avoid repaying the whole $100.
4. You Must Have Bad Credit
Payday lenders won’t extend credit to those with good credit histories, but if you have bad credit, you can still qualify. However, you will likely end up paying a high interest rate.
You should do everything you can to improve your credit score. Lenders consider credit scores as part of their risk assessment process, so it’s important you do all the work necessary to get your score as close to perfect as possible.
Credit repair services can help you fix mistakes on your credit report. For example, if there is an error on your report that prevents you from getting approved for credit, you can request that the lender correct it. In most cases, lenders will honor your request.
5. You May Not Qualify for New Credit After Using a Payday Loan
After using a payday loan, it can take months to build up enough credit history to qualify for new credit. Even then, you may only qualify for limited amounts. This makes it difficult to rebuild your credit history after having a bad credit period, which often lasts for years.
If you need to borrow money later, you might have trouble finding anyone willing to give you a loan.
6. You Could Become Responsible for Back Taxes
If you fail to pay off your payday loan, the lender may file a claim against you for any tax penalties related to the unpaid debt. If you owe taxes and you can’t afford to pay them, you may end up having to settle the tax bill.
If you have a federal income tax refund coming due, you should contact your local IRS office and ask if the agency has filed a lien against your property. If the IRS files a lien against your home, you can use the money from your tax return to pay off the loan instead.
How Long Does a Payday Loan Stay Permanently On Your Report?
Payday loans stay permanently on your credit report for seven years. While some lenders have been known to keep a certain amount of your payment history around longer, this practice is becoming less common. Lenders are required to notify you at least once every 12 months regarding the status of your application.
If you believe you were denied credit without cause, you can dispute the information on your credit report through a third party such as Experian or TransUnion. You must follow specific steps to do this.
What Happens if I Don’t Pay My Payday Loan?
If you fail to repay your payday loan, most lenders will issue a warrant to place a hold on your bank account. Once the hold is placed, you will not be allowed to withdraw any funds until the loan is paid in full.
Once your account is frozen, you are responsible for the entire outstanding balance. Lenders also try to collect the total amount owed, including fees and interest, whenever possible. If you continue to ignore your payday loan, the lender may send you a collection notice that includes a court order to appear in court if you refuse to pay.
Where Can I Find More Information About Payday Loans?
The Consumer Financial Protection Bureau (CFPB), along with state regulators, has created several resources to help consumers understand and navigate the world of payday lending.
In addition to the CFPB’s website devoted to payday loans, you can visit the Federal Trade Commission’s website to learn more about how to protect yourself from predatory lending practices. Here, you will find the FTC’s online complaint form where you can submit complaints against businesses that you feel have violated fair lending laws.