How do payday loans affect my finances?
Payday loans are a little like the Mafia in the Godfather movie. Don Corleone implies to the undertaker that wants justice for his daughter; the underground Mafia exists because people can not get fairness and justice from the police. Similarly, Payday loan providers tweet that 400 percent APR is justified for a two-week payday loan because people need the money now, and they won’t get it from their bank or employer.
First, when it comes to Payday loans, the providers are probably correct. It is estimated that 12 million Americans will take out Payday Loans this year, and these small loans, from a few hundred to $1500, will generate the loan providers an estimated $9 billion dollars in revenue for 2019 alone.
How do Payday Loans Work?
Small differences apply from State to State, but essentially a potential customer either goes into a shop or applies online. Most Payday Loans are fairly easy to obtain because a person’s credit score isn’t checked. Instead, what the providers of payday loans want to see is paystubs from your current employer, and proof of your bank account.
The procedures vary somewhat from lender to lender, but some require you to fill out a post-dated check for the amount due or require you to fill a form allowing the lender to take payment directly from your bank account.
Both are giant red flags because the only way to keep a lender from withdrawing funds directly from your bank account is to personally go to the bank and have them stop payment on any withdrawal from the lender, or in the case of the check, you are deep legal jeopardy if you can’t pay when the loan is due because you wrote a check for the amount, and you may, by law, be in a position of check-kiting if you fail to pay.
About the only good thing about Payday loans is they rarely show up on your Equifax or Experian to influence your credit score. The bad part of that is you don’t get any loan history to boost your credit score. The worst part is they can show up later if your loan goes bad, and the Payday Loans company turns the debt over to a debt collector.
In the circumstances like this, the debt collector can provide the information to the credit companies, and your credit score can drop.
What to do if you foresee you can’t pay?
In order to protect your credit score, reputation, and peace of mind, begin by immediately contacting your lender as soon as you know you won’t be able to make the payment.
This may be intimidating as you probably don’t like to deal with confrontation, and you know that the lender of your payday loans won’t be exactly likely to greet the news with open arms.
It may help you to know that generally, the law is on your side. First, it’s possible to sue if a Payday lender begins to threaten to call your employer, have you thrown in jail, send over a “collector” to get his money back, or take any unreasonable actions.
The minute this happens, kindly but firmly remind the lender that you know and understand the laws concerning harassment.
Next, while by law, the lender must direct you to free and independent sources of financial advisors.
After that, see a financial advisor, paid or free out, and develop a plan for payday loan relief. Part of that plan, after consultation, would be to call the lender back well in advance of the loan payment date, and formally request suspension of all payday loans for a reasonable time, while you are consulting with the advisor.
You may consider asking the lender to accept smaller payments while the process continues, but be aware that regardless, you will probably be hit with a number of fees by the lender for not paying on time.
Subsequent to that, phone your bank and ask them to cancel any continuous authority transfers from your account. If the bank pushes back, inform them you are involved in potential litigation.
What to do with your financial consultant
Hopefully, you have selected a reputable, accredited financial advisor such as National Payday Loan Relief.com to create a genuine payday loan relief plan of action.
Unfortunately, there are many “scam” payday loan relief organizations out there, who will do little more than take your money. So be sure your payday loan relief company is reputable and has a good rating with the Better Business Bureau.
Once you’ve selected your payday loan relief consultant, come prepared. Be sure and show him or her exactly what you think you owe, the address and phone number of any payday loan company involved, and bring all copies of any documents you signed with you.
It’s also helpful to bring a copy of any credit score paperwork with you so the advisor knows what he or she is looking at.
Finally, come prepared with a written copy of your expenses and your income.
After that, be prepared for a frank discussion, so that a payday loan relief plan can be made.
One reason the advisor may want to look at your credit score is to determine whether another window, such as a possible loan from a bank or a credit union, is an option.
Many people just assume their credit scores won’t allow for a loan when that may not be true. The advisor may know of a bank that accepts loans with people with your credit score, or they may even offer personal loans themselves. In addition, the advisor may question you about certain dings on your credit score that can easily be fixed by challenging them.
The idea is to see if another avenue outside of a payday loan may meet your needs.
Finally, your advisor will most surely discuss with you the two types of payday loan relief, which are:
- Your consultant negotiates with your lender to flat out reduce the total you owe. The lender, for example, foreseeing the possibility of an extended battle, may be willing to negotiate on all the additional rollover fees or other fees the lender has tacked on above the principal.
- It frequently happens that an individual has outstanding payday loans from more than one lender. By creating a loan consolidation, the consumer pays the financial consultant direct, and he or she then distributes the payments proportionately.
Either way, Payday lenders have little incentive but to negotiate. Court suits are notoriously expensive, and debt collectors typically take 50 percent off the top for expenses.
Hopefully, by consulting a financial advisor, you’ll be able to break the continuous cycle of managing paycheck to paycheck by using payday loans.