What is a payday loan consolidation?

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Millions of Americans are struggling to make ends meet. According to a First National Bank of Omaha survey released earlier this year, 49% of American adults expected to live from paycheck to paycheck in 2020, and there is no doubt that the pandemic has done so. that make matters worse. In July, Pew reported that nearly 12 million Americans use payday loan consolidation”}” data-sheets-userformat=”{“2″:513,”3”:{“1″:0},”12″:0}”>payday loan consolidation each year.

In a pinch, a payday loan can seem like an easy solution if you are strapped for cash. You usually need proof of income and ID, and you can get a small loan on the spot. But read the fine print and you will see that these payday loan consolidation are loaded with hidden fees and high interest rates as they are unfortunately intended for people who find themselves in a difficult situation and have few options to get a loan. affordable from a reputable lender.

Payday loans are considered a predatory form of lending by the ACLU, and many states have pending legislation to place interest rate caps and other regulations on the amount lenders can charge. More recently, Nebraska passed legislation lowering the interest rate cap from 400% to 36%. While 36% is more expensive than the average APR for a credit card, this is a huge improvement for many borrowers who are struggling to repay these loans.

How payday loans work

Often times, people will visit physical locations to apply for a payday loan in person. To complete an application, you will need to have recent pay stubs that prove your income. Your payday loan may be unsecured, or the lender may use your income as collateral, giving them the right to garnish your paycheck if you don’t pay it back.

If you have a bad credit history, the lender will withdraw your credit report, which will cause a hard draw, and make a decision.

After you get your money (usually the same day), you usually have less than 30 days to pay off the loan in full, plus finance charges. It’s very different from a traditional installment loan, where you pay off the debt over a few months or even years.

The pitfalls of payday loans

While payday loans can be a quick way to get the money you need, the interest rates are sky-high. Currently, lenders are not required by law to verify that you are able to pay off those exorbitant finance charges and fees, let alone the money you borrow.

And the consequences if you can’t pay it back are serious: Fees and charges vary depending on how much you borrow and where you live. In some unregulated states, you could pay more than 500% interest on a short-term loan of a few hundred dollars, which increases over time when you can’t pay off the balance.

Worse yet, when payday loans are secured by your paycheck, you can open up the access to allow lenders to garnish your paycheck, making it nearly impossible to move forward.

Alternatives to payday loans

If you can, avoid payday loans and consider lower interest rate options instead. This could be borrowing money from a family member and paying it back, taking out a personal loan, or trying to negotiate a payment plan with your debtor.

If neither of these options are viable, you may want to consider using your credit card, either by simply swiping it or by taking a cash advance (which usually comes with a fee of around 5% or more). While credit cards have some of the highest interest rates, they are still cheaper than what you could pay if you took out a payday loan that you can’t afford to pay off.

If you can’t pay off your credit card balance in full, you can still protect your credit score by making minimum payments until your financial situation improves.

Editorial note: Any opinions, analysis, criticism or recommendations expressed in this article are the sole responsibility of the editorial staff of Select and have not been reviewed, endorsed or otherwise approved by any third party.


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