What is Payday Loan in USA?: Payment loans differ from other types of loans in the main way that they are minimal. Hence the name is usually required to be returned (plus cost) by the next borrower payday after taking out the loan. This can be one week, two weeks, or a month.
Unlike traditional loans, payment loans are not secured, which means borrowers do not need a guarantee to obtain them. Credit reports and credit scores are not part of the loan process.
According to the Consumer Financial Protection Bureau, eligibility requirements for a payday loan include:
- An active account with a bank or credit union or a prepaid card
- Being at least 18 years old
- Valid ID
What is Payday Loan in USA?
According to extensive research by the Pew Charitable Trust, 12 million Americans use payday loans each year. Research from Fed St. Louis noted that many people thought he had a love affair.
The day pay loan is a progression to the next part of your salary. Once approved, the company will give you a small amount — usually no more than $500 — and collect it for you to use its services.
Say, for example, you’re short of money for a month and can’t pay rent, so you turn to a payer and apply enough to help you. The lender approves your loan and pays you $15 for every $100 you pay. You get $400 to help pay the rent, so you must pay $460 to the lender.
Fast Cash and Repeat Borrowing:
Provident loans are marketed as a way to get “fast cash” for emergencies or to meet low needs, but many people use them repeatedly for cash crunch problems.
In a recent article by the St. Louis Fed, senior economic education expert Janet Bennett pointed out that the most common payday loan users included low-poverty and higher rates. According to Pew, three-quarters of all wage loans are taken by borrowers who have taken out 11 or more loans in a year.
An often-used explanation, Bennett said, is the fact that the loan is used to pay for basic costs. Pew said that about 58% of borrowers struggle to meet their basic monthly expenses, so payday loans are often used for necessities like rent and utilities.
Another reason for frequent use is that the average loan requires a $430 payment on the next payment day (per PU), and most borrowers cannot pay it, and the loan is updated or re-borrowed. It should be taken. Therefore, people need loans, but they cannot bear them. This causes people to get stuck in a debt cycle: each new loan incurs a higher cost, which can be based on the initial or higher amount of the loan.
Calculating Payday Loan Fees and Interest:
Payment down payment may seem like an easy and fast solution to low-cost problems — requiring fast cash — but in reality, the cost is much higher than with traditional loans. According to Bennett, the average interest rate on an average payday loan is 391%. That is, the payment is made after two weeks.
For comparison:
According to the bank, the credit card interest rate generally stood at around 17.8% at the beginning of July 2019.
According to economic data from the Federal Reserve Board of Governors, the financial level of personal loans at commercial banks stood at 10.63% in May 2019.
Why is the loan rate so high? Cost-based structure. As Bennett noted, the loan cost is high because it is more expensive than other types of loans due to the small nature of this loan.
To calculate the APR from the paid loan, or the annual percentage for the amount borrowed compared to the cost of one year, the level of interest, and cost.
Payday Loan Regulations:
With the potential to create a loan cycle, it may seem that the cons of using a payday loan outweigh the pros.
For some consumers, payment loans may seem like a comfortable option. They provide fast cash with minimum documents. They can be the only source of credit available to people with low credit scores and those who cannot get a traditional loan.
The country is aware of the potential for loans that can be used with wage loans, and each state has its own rules. The rules may vary greatly depending on what situation you are in. The rules relating to continuous loans and the waiting period between the loan and the loan limit vary, among other details.
Some countries have declared directly paid loans illegal. Seventeen states and the District of Columbia have forbidden it outright or have set laws that have a similar effect by excluding lenders from the business. (This was in early 2019; state regulations kept increasing).
Regarding federal regulation, the Consumer Finance Bureau, or CFPB, 2011 was designed to protect consumers. Payday looks at CFPB lending practices and stays connected to consumers, using this information to develop new federal regulations.
Conclusion:
Love or hate them? Payday loans can help, but Bennett recommends turning your attention while you take care of her.
“As with all types of credit, the borrower must realize that when they take out a payday loan and avoid taking out loans, they cannot afford,” he wrote, “” without borrowing the power of knowledge. was expensive. ,
