Facts About Payday Loans

Top Facts About Payday Loans

Every day, payday loans get more and more customers; in light of this, we’ve compiled a list of the top five facts regarding payday loans.

A loan that is taken out from a lender and is paid back on the borrower’s next payday is known as a payday loan.

However, despite the negative press that has been generated over the years due to the industry’s historically high interest rates, things are now quite different.

As circumstances get more difficult and banks become more stringent in their lending standards, an increasing number of people are turning to this alternative to assist them get through an unexpected occurrence.

The overall conclusion that can be drawn is that your loan will only cost you a little amount of money if it is paid back on time.

However, if the loan is not repaid by the due date, then you will be responsible for paying a significant amount of interest on it.

This is just one illustration:

  • If you borrow £100 and are able to repay it on time, the total amount you would owe will be £24 more, or £124.
  • If you borrow £100 and then fail to make a payment, you will be charged a total of £139.00 because the missed payment will cost you £15.00, plus.08% (80p) every day, which comes to £24.00 per month.
  • In the financial years 2017-2018, consumers in the UK took out an average loan of £260. The sum of one hundred pounds is the single most common dollar amount that a customer borrows.

Three out of every four people who took out a payday loan ended up taking out several loans within the same year.

  1. Cash advance loans are completely safe and sound.

To answer your question, yes, getting a payday loan is completely risk-free because the vast majority of lenders operate on encrypted platforms that safeguard your personal information.

  • No Guarantor necessary

The majority of loans that you can see advertised online will almost always have conditions in place that need you to have a guarantor. However, this is not necessary if you take out a payday loan.

  • You will receive the money on the same day it was transferred.

The fact that you can get the money from a payday loan on the same day that you apply for it is one of the best features of these types of loans.

If you apply before 3 pm and have all of the necessary documentation and identification verification with you, you will be considered. Within the next two hours, you should have access to the monies that you requested.

4. A high percentage of approvals even for those with a poor credit history

Payday loan firms will look at your application and determine whether or not you can afford the loan, even if you have low credit and are in need of financial assistance.

In addition to a sizable group of lending experts being there. Your prospects of getting a loan are better as a result of this. However, before you even apply for the loan, you should make absolutely certain that you won’t have any trouble paying it back.

5: Everyone is eligible to apply for loans of this type.

It’s possible that you’re under the impression that the only people eligible for a payday loan are those with low incomes and credit scores. Not true. Payday loan agreements are typically signed by people with incomes ranging from low to high.

Everyone has their own set of financial obligations, and everyone, at some point or another, will require an additional sum of money to help them get through a period of their lives when they require it the most.

At PM Loans, our goal is to bring a smile to a sector that has made it very evident that there is a significant demand for its services. Because we place such a high priority on our clients’ satisfaction, we are widely regarded as the industry’s premier source of payday loans.

Over the course of the past five years, Pew has devoted a significant amount of time and resources to doing in-depth research on the market for expensive small-dollar loans. According to the data, despite the fact that these products can immediately provide customers with cash, the consumers are forced to take out additional loans in order to pay for their other obligations. Each year, twelve million people in the United States apply for and get payday loans, incurring costs totaling $9 billion.

This year, the Consumer Financial Protection Bureau (CFPB) is scheduled to publish new regulations that would completely reshape the marketplace for payday, auto title, and other types of loans for relatively modest amounts of money. The information presented here include details on the market and borrower usage, in addition to a brief analysis of the proposed regulatory framework put forth by the CFPB to govern payday and auto title loans.

The majority of borrowers end up paying more in interest and fees than they were originally given in credit.

  • The typical person who takes out a payday loan goes into debt for five months of the year and spends an average of $520 in fees to borrow the same $375 amount many times. A storefront lending company will charge you an average of $55 in fees every two weeks.
  • Payday loans often have a repayment date that is two weeks after the loan was taken out and are connected to the borrower’s pay cycle. Direct access to a borrower’s checking account on their next payday is provided by payday lenders either electronically or in the form of a postdated check. This means that the payday lender is able to collect from the borrower’s income prior to the payment of any other creditors or debts.
  • Even while payday loans are supposed to be useful for unforeseen or emergency situations, seven out of ten borrowers use them to pay for routine, reoccurring costs like rent and utilities.
  • Auto title loans are very similar to payday loans, with the exception that the typical loan amount is $1,000 and the borrower’s car title is used as collateral for the loan. Each year, around 2.5 million people in the United States pay a total of $3 billion in costs associated with auto title loans.
  • Payday loans are offered in 36 states, with average annual percentage rates of 391%. Payday loans are also known as cash advances. These loans are practically illegal in the other states because interest rates are capped at extremely low levels or because other regulations are enforced.

The reforms that Colorado enacted for payday loans made them more affordable, drove down prices, and maintained access to credit.

  • Payday loans with customary terms of two weeks were replaced by loans with instalment terms of six months and interest rates that were roughly two-thirds cheaper in 2010 under a law passed in Colorado.
  • There is still a wide availability of credit in the state of Colorado. Despite the fact that half of the payday loan stores were forced to close, the remaining stores are now able to accommodate twice as many customers at each site, and 91% of the population still lives within 20 miles of a store.
  • Instead of paying 38 percent of their next salary toward the loan, typical borrowers now pay 4 percent of their loan balance.
  • The majority of borrowers choose to repay their debts ahead of schedule, which results in financial savings.

The majority of borrowers end up paying more in interest and fees than they were originally given in credit.

  • The typical borrower of a payday loan will have outstanding balances for five months out of the year, costing them an average of $520 in fees.
  • To borrow $375 on multiple occasions. A storefront lending company will charge you an average of $55 in fees every two weeks.
  • The typical term for a payday loan is two weeks, and the repayment schedule is based on the borrower’s pay period. Lenders of payday loans operate in direct access, either electronically or with a postdated check, to a borrower’s checking account on the borrower’s pay day. This makes certain that Payday lenders have the right to take their portion of the borrower’s earnings before any other creditors or expenses are paid.
  • In order to obtain a payday loan, the borrower is required to have a bank account in addition to a stable income. The typical borrower has an annual income of approximately
  • $30,000 every year, and 58 percent of them struggle to satisfy their monthly obligations on that amount.
  • Despite the fact that payday loans are marketed as being beneficial for unforeseen or emergency needs, seven out of ten people who get them end up using them for non-emergency
  • Borrowers put them to use for consistent, recurrent expenditures like rent and utility bills.
  • Auto title loans are comparable to payday loans; however, the average loan amount is $1,000 and the loan is secured by the borrower’s vehicle.
  • Title to the vehicle being borrowed. Each year, around 2.5 million people in the United States pay a total of $3 billion in costs associated with auto title loans.
  • Payday loans are offered in 36 states, with an average annual percentage rate of 391%. These loans are also known as “payday advances.” Those additional states
  • These loans would be practically illegal if interest rates were capped at a low level or if other regulations were enforced.

Fact v. Fiction: The Truth about Payday Lending Industry Claims

The payday loan industry is opposing efforts to reform the industry by portraying itself as “customer friendly,” misrepresenting the facts, and getting around state regulations in order to protect the enormous profits that are at stake.

  • First assertion: payday loans provide access to much-needed short-term credit.
  • Claim 2: Working people make up the majority of customers for payday lenders.
  • Claim 3: Customers are aware of the price that they must pay for this service.
  • Claim number four: Payday loans are more cost-effective than other available options.
  • Argument 5: The high interest rates are justified by the considerable risk associated with these loans.
  • Claim 6: The vast majority of customers make responsible use of payday loans.
  • Claim 7: Customers are against any restrictions placed on payday loans.
  • Claim 8: The payday lending business is already subject to a great deal of regulation.

Number 1:

They state that “Payday loans give clients with the essential credit to cover immediate demands.”

In point of fact, taking out a payday loan almost always results in the borrower having MORE financial issues, rather than FEWER.

Payday loans make it simple for consumers to obtain cash quickly and do not require a credit check; yet, the majority of the time, these loans do little more than put off a financial emergency for the two weeks that it takes to repay the loan. There are very few borrowers who are able to repay their payday loan when it is due because these loans are designed for people who are already experiencing financial difficulties. 91% of all payday loans are given to borrowers who are stuck in a cycle of repeat borrowing, defined as receiving five or more payday loans within a calendar year.

Borrowers acquire anywhere from eight to thirteen payday loans from a single payday shop on an annual basis, on average. In most cases, these are known as loan flips, rollover extensions, or back-to-back transaction loans. With these types of loans, the borrower pays a fee in exchange for no new money and never makes any progress toward paying off the principal amount owed. The predicament of the typical borrower is made even more difficult by the fact that borrowers frequently visit more than one shop (1.7 shops on average), thereby taking out 14 to 22 loans per year. In point of fact, just one percent (1%) of all payday loans are given to individuals who only need the money for a one-time emergency, pay back the money within two weeks, and do not take out another loan within the following year.

Payday lenders are prepared to lend to nearly anyone who has a bank account and some type of regular income because the payback on their loans is so high. The financial services industry refers to this “open door” concept as “helping customers who have been denied access to credit by traditional lenders.” However, payday loan companies are really making it easier to get into debt rather than offering access to credit. And as statistics from the bankruptcy and credit card industries demonstrate, American consumers are swimming in more debt than they are able to responsibly manage. A payday loan with an interest rate of 400% is not the solution for folks who live paycheck to paycheck.

“Every time payday rolled around, I had the impression that I was being suffocated. After a while, I began to get the notion, “There’s no way I’ll ever get off this merry-go-round.” During this time period, I was given a promotion and a pay increase; however, I was never given any of that additional money. It was all put toward paying the expenses associated with my loan.”

Anita Monti is a payday borrower from North Carolina. After falling behind on her payday loan payments, Anita was forced to seek assistance from the church in order to pay her rent.

Number 2:

They believe that payday lenders are there to help families that are working middle class. In point of fact, the business plans of the industry describe targeting customers who are disproportionately low-income or members of minority groups.

The “middle class roots” claim made by the payday lending industry is supported by research conducted by the Georgetown Credit Research Center (CRC), which was sponsored by the payday lending industry trade association and created in partnership with the trade group. This study, which, as should come as no surprise, makes an attempt to put a positive spin on the predatory tactics of payday lenders, was conducted using data that is private to the industry and is therefore inaccessible to third-party observers. Read our analysis of the study conducted by the Georgetown CRC.

Only 427 of the 5,400 payday borrowers were interviewed for this study, therefore the CRC’s conclusion that 50% of payday borrowers had a middle income is based on those interviews. In addition, the researchers minimised the significance of the fact that almost twice as many borrowers (726) denied they had ever taken out a payday loan, and that two-thirds of borrowers refused to be interviewed.

On the other hand, the real business plans that payday lenders have imply that they are targeting a different clientele:

“There are 40 million families in the United States with incomes of $25,000 or less, and these households require easy access to check cashing services [and] prompt availability of micro loans ranging from $50 to $300…

In addition, it is anticipated that this market will expand over the course of the following decade, particularly among the households who are exiting the welfare rolls in favour of employment.”

Payday’s plan for business.

“The season plays a significant role…

Tax season and Christmas offer [more payday loan] activity; summers can be slower but could be greater if your community grows with migrant workers. [More payday loan] activity is offered during [the] tax season and [during] Christmas.”

Number 3:

They assert that “customers are aware of the expense of this service.” [C]ustomers are aware of the cost of this service. Customers of payday lenders are frequently given misleading information regarding the true cost of the loans they take out, which can lead to financial hardship.

Even the research that was paid for by the company itself revealed that more than forty percent of borrowers believed that the annual percentage rate (APR) of their payday loan rates was less than thirty percent, which is not significantly higher than the rate on a credit card. In point of fact, the interest rates on payday loans are on average thirteen times higher, which is equivalent to nearly 400%. The following excerpt, which is taken from a business strategy for payday lending, may assist to explain one of the causes that are leading to this confusion:

“The following is how the yearly percentage rate is presented on the client disclosure form:

You are not permitted to enter a % sign in this space at all! Simply enter a number in that space. To demonstrate this, type the number 805 into the first available space. Should you enter 805 percent, the customer might become anxious about the next purchase. It is important to keep in mind that the normal response to the question “How much do you charge?” that is posed by a customer should be “We charge $15 per $100 advanced.” The fact that the loan is only for eight days means that the true annual percentage rate is 805%, despite the fact that the interest rate looks to be 15%.”

Number 4:

They state that “Payday loans are more affordable in comparison to costs for failed checks and other alternatives.”

In point of fact, the typical payday loan costs more than twice as much as the late fee assessed by a credit card company, and it is far more expensive than paying bills late. Fees for rejected checks and late payments are sometimes collected as additional fees by payday lenders.

If you were in an immediate and temporary financial crisis without any other possible source of funds, and if your income was such that you could readily cover a postdated check, then in theory, a payday loan could make economic sense for you. However, this only holds true if both of the following conditions are met: In point of fact, everybody who satisfies these requirements most likely also has access to some other type of credit that is more reasonably priced than a payday loan.

Payday lending, on the other hand, serves as a form of persistent debt rather than useful credit for the vast majority of payday borrowers. These are the borrowers who take out five or more payday loans annually and account for 91 percent of the total amount of payday loans. This is due to the fact that fees for renewing payday loans are levied on a recurring basis, whereas fees for being late or having a check bounce are one-time charges that do not increase according to the size of the loan.

Even more illuminating is the contrast with smaller consumer loans: a person can borrow $1,000 from a finance business for a year and pay back less than they would on a $300 payday loan over the same time period!

In addition, even though many jurisdictions have criminal statutes regarding bad checks, these rules do not apply to situations in which the creditor accepts a check with the full understanding that it was not “good” when it was written. Despite this reality, payday lenders continue to make threats and frequently file criminal lawsuits against their customers.

Other lenders simply deposit the checks after the consumers fail to repay the debt, and then proceed under insufficient-funds laws to collect the principal and interest, the regular bounced check fees, triple the check amount as a penalty, and attorney’s fees. This is done in addition to collecting the regular bounced check fees. For instance, the Indiana Department of Financial Institutions discovered that at least three lenders had brought 700 cases of this kind over the course of two years.

“A docile customer can be obtained by threatening them with an advance of $200 that will eventually cost them more than $1,000 and would destroy their credit…

You are authorised by this [agreement] to collect a wide variety of late fees as well as NSF charges.”

Payday’s plan for business.

“The revenue generated from late fees is extremely valuable. If you want the bank to stamp the check(s) as non-sufficient funds (NSF), you do not need to actually present the check(s) to the bank. Get your own stamp by buying one! You simply say “Before they accept my deposit, the bank checks to make sure I have sufficient funds… I am sorry to say that the Cheque I delivered to you was not satisfactory. Each check will incur a charge of $15.” If you were to split their payday advance into two or three Cheque, you might perhaps get them off the hook for one of the late fees.”

Number 5:

They argue that the interest rates should be high because the loans are high risk. In point of fact, payday lenders have low losses and significant profits (with a return on investment of 34% or more). Even though most people who take out payday loans have low incomes and poor credit records, the payday lender would have to put in a lot of effort to wind up in the negative.

Holding a “live” check as security provides a lender with strong collateral and leverage over a borrower who, when confronted with the threat of criminal prosecution and penalty fees, will continue to pay renewal fees every two weeks even if they are unable to afford to repay the loan in full and walk away from the arrangement.

Because of these renewals (also known as loan flips), they never make a dent in the principal amount that is outstanding. For example, just 6% of payday checks written in North Carolina in the year 2000 were returned for insufficient funds (also known as NSF), yet lenders recovered approximately 69% of the value on these checks. In addition to that, they made 2 million dollars in NSF fees.

In comparison, the default rate for credit card companies is approximately the same as the default rate for payday loan companies, which is approximately 6%. However, the interest rate on a credit card rarely exceeds 29% (in contrast to the interest rates that are routinely charged for payday loans, which can be as high as 400% APR).

The average rate of default on a personal loan is about 2%, and the annual percentage rate (APR) ranges from 5% to 15%. When compared to other types of credit, the exorbitantly high annual percentage rate (APR) charged on payday loans is wildly disproportionate to the comparatively low risk that is involved in obtaining one of these loans.

In addition, a lender can actually make money off of a borrower who defaults on a payday loan after repeatedly renewing it. This is due to the fact that the fees that are accrued quickly exceed the original amount that was borrowed. In the few instances in which a payday loan is not repaid, the lender stands to lose only ten to twelve cents for every dollar that was loaned out. This is the case in the majority of states.

“[Payday lenders] understate revenues and inflate default rates in order to discourage possible new entrants into the market,” according to the article.

Number 6:

They claim that “the majority of borrowers make responsible use of payday loans.” In point of fact, payday lenders are successful because they are able to keep customers mired in an endless cycle of debt. Payday lenders aren’t all that interested in customers who have valid needs that will only last a few weeks and can repay their loan within two weeks’ time.

Payday lenders instead make the majority of their profits from borrowers who are unable to repay their loans and instead to instead continually renew them, quickly paying back more in fees than they originally borrowed. Payday lenders obtain the vast majority of their earnings from borrowers who take out five or more loans.

This “churning” of customers rather than an increase in overall consumer demand is what is driving the expansion of the payday loan sector. For instance, despite the fact that payday loan revenues increased by 27% in North Carolina between the years 1999 and 2000, the vast majority of this growth was attributable to lenders convincing their consumers to take out more and larger payday loans.

“[Lenders] may suggest they are offering a service to folks who merely need some money every now and then till their next payday in order to make ends meet. However, we were instructed to urge customers to apply for another loan as soon as the following day after they paid off their previous loan… We endeavored to persuade our consumers to continue taking out loans and to borrow up to the maximum amount that they were approved for, regardless of whether or not they desired to do so.”

Number 7:

They make the following claim: “Consumers value this service and are opposed to any limits on payday lending.”

In point of fact, consumers desire non-predatory small consumer loans, not “business as usual,” and they deserve to have access to such loans.

According to a study conducted by the Georgetown Credit Research Center (CRC), which was funded by the industry, 75% of borrowers believe that the government should limit the fees charged by payday advance companies, and 72% believe that the government should limit the interest rates that lenders can charge, even if it means that fewer consumers will be able to get credit. Both of these beliefs were expressed by borrowers who were interviewed.

In addition, the following excerpts from a payday lending company’s business strategy offer a peek of the “service” that consumers are actually receiving in exchange for the extremely high interest rates on their payday loans. It is little wonder that eighty percent of the borrowers the CRC attempted to interview refused to do so or denied that they had ever taken out a payday loan.

“These customers are quite amenable to change. Because they are in desperate need of the money, they will comply with your demands.”

Payday’s plan for business.

“Tell [your clients] that in the event that their finances are not good on the day that they promised, you are required to send their check(s) to your [mythical] “bonded company” so that their legal team can pursue the problem.”

Payday’s plan for business.

“Assist them in visualising an armed United States Marshall in full uniform showing up at their place of business. Insist to them that the United States Marshal will first ask for the immediate supervisor who is in charge of them!”

Payday’s plan for business.

It is recommended that you include an arbitration clause in all of your contracts because doing so has the effect of putting class action lawyers on edge.

Payday’s plan for business.

Number 8:

“The payday sector is already severely regulated,” they claim.

In practise, the laws governing payday loans in each state nearly invariably favour lenders over customers. Payday lenders in jurisdictions with legislation providing actual consumer safeguards ignore negative state restrictions by alleging that federal preemption allows them to do so.

The “regulation” of the payday lending industry is not accomplished by the laws that have been approved in 34 states and the District of Columbia. These statutes were, for the most part, created by the industry, and their primary objective was to make it possible to engage in this kind of lending rather than to prohibit it.

There are not many limits in these statutes that truly serve to safeguard consumers. Two additional states do not have any usury caps and do not control the other terms of payday loans in any way. There are presently just fourteen states, Puerto Rico, and the Virgin Islands that have not repealed their usury laws or repealed their small loan regulations.

“The payday advance sector is adopting the same business model as the rent-to-own industry, as well as that of banks and credit card companies. That is, recruiting the very best legal minds available in order to enable laws that will let our industry to expand… The most effective course of action would be for a state to enact legislation that would facilitate the operation of our industry.”

Payday’s plan for business.

Payday lenders are getting around state bans and usury limits by entering into brokering arrangements with banks, which are also known as rent a charter arrangements. These arrangements are prevalent in states that offer robust consumer protections. These loan companies argue that they are free from state law because they have formed partnerships with banks located in other states.

Significant steps have been taken by the Office of the Comptroller of the Currency, the Office of Thrift Supervision, and the Federal Reserve Board in order to prohibit the financial institutions that they oversee from entering into business relationships with payday lenders.

However, the Federal Deposit Insurance Corporation (FDIC) continues to let this form of deception to be practised by the banks that it insures. There are perhaps a dozen small banks that are regulated by the FDIC that make it possible for payday loans to be provided in states where such loans are prohibited by law. A number of states, including Georgia and Maryland, have been successful in taking measures to close the rent-a-charter loophole in their respective laws.

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