Payday loans are attractive enough when you are in dire need of cash. During that time, most of us become vulnerable to fast cash loans like payday loans or pdls in short!
A Pew Charitable Trusts study reveals that about 12 million people in our country take out pdls every year, spending about $9 billion on loan fees
But what makes a payday loan so appealing to people?
- Faster cash disbursement
- No credit check required
- No need to keep any collateral
- The due date is on your next paycheck date
As we came to know, people who take out pdls, spend a huge amount on loan fees every year! But, why so?
A Consumer Finance Protection Bureau (CFPB) study reveals that the average payday loan has an APR of about 400%!
Let’s say, you have taken out a pdl of $1000 with a 14-day term that charges $20 for every $100 you borrow!
You can calculate the APR of your pdl by following the steps
- Divide the total loan ($1,000) by 100.
- Multiply the result (10) by the fixed fee ($20) for every $100. This is your finance charge.
- Divide the finance charge ($200) by the loan amount ($1,000)
- Multiply the result (0.2) by the number of days of the year (365
- Divide the total (73) by the term of the loan (14)
- Multiply the results by 100 and add a percentage sign
- The result: ((($200 / $1,000) x 365) /14) x 100 = 521.42%
Payday Loan APR = ((Loan Fee/Loan Amount) x 365)/Loan Days) x 100
As you can see, taking out a loan of $1000 loan for 2 weeks can cost you $200 in finance charge and an APR of 521.42%!
No doubt, a pdl offers you fast cash disbursement but paying it off is cumbersome! That’s why you will find many people who have rolled over their pdls into the new ones.
In fact, another CFPB study reveals that over 80% of the payday loans are rolled over or re-borrowed!
So, decide wisely before you opt for a payday loan
Wait! Have you already removed the pdl? Then you should pay it off at the earliest!
Here we have listed some of the legit ways to get you out of your pdl debt trap.
Extended Payment Plans (EPPs)
Is your payday lender a member of the Community Financial Services Association of America (CFSA)?
If yes, you might be lucky enough! Because CFSA’s Best Practices can help you get an EPP from your lender. Broadly speaking, you can get more time to repay your loan!
In most cases, you will get 4 extra pay periods without shelling out any extra charge or fee!
The biggest advantage is, you won’t get collection calls unless and until you aren’t defaulting on your EPP.
But make sure of the following things:
- You should apply for the EPP before the last business day of your due date
- If you have taken out a pdl from a store, then you have to visit that store once. Get your application approved for the EPP and sign a new agreement with your lender.
And for online pdls, you have to talk to your lender about the instructions for signing a new agreement.
Payday loan consolidation
Are you trapped with too many payday loans?
Obviously, the incessantly high APRs of your pdls are making your situation worse! So, what if you get a bit of relief from these exorbitant APRs!
Yes, you heard it right! You can opt for payday loan consolidation to get out of the payday loan debt trap! But, how so?
You need to negotiate with your lenders to reduce the APRs of your pdls and waive off the extra charges and fees. If they agree, you can start paying off your debts at reduced APRs and possibly without any extra charge. And thus, you can certainly save some dollars on the interest payments!
But practically speaking, the negotiation process is not that easy! Because in most cases, the pdl lenders don’t want to negotiate in the first instance. You will have to convince them for negotiation.
In the meantime, you might get exhausted while negotiating with pdl lenders. In that case, you can approach a genuine payday loan consolidation company for your payday loan.
The consolidation company will try to negotiate with your lenders to reduce the APRs. Moreover, it helps you to consolidate multiple pdls and make single monthly payments to pay off your debts. Then, it will distribute the money among your lenders. But always remember, you have to pay a professional fee for these services!
Payday loan settlement
Sometimes due to any adverse situation, you might face a financial crunch. As a result, you might fall short of funds to pay off your pdls. The situation becomes worse when you don’t have enough funds to repay your pdls even at reduced APRs!
After continuous non-repayment, you start getting collection calls! Also, due to continuous nonpayment, you might face dire consequences like wage garnishment, seizure of assets, etc.!
But can pdl lenders really garnish wages and seize assets?
Well, let me tell you, wage garnishment is not possible without a valid court order. And your assets can’t be seized unless and until you are filing for bankruptcy. But before the pdl lenders sue you in court, you can try to negotiate with them for settling your pdl debts!
In payday loan debt settlement, you have to negotiate with your pdl lenders to reduce the outstanding balance amount. First, list down all your pdls and calculate the total amount you owe. Then start negotiating by offering 50% of the total amount you owe to settle your debt. If they agree, you have to make a lump sum payment (settled amount) to the pdl lenders.
In most cases, the pdl lenders don’t agree to settle the debts initially. So, it might take a considerable amount of time. But you can stay away from all these headaches by consulting a genuine debt settlement company.
The settlement company will negotiate with the lenders on your behalf to reduce the total amount you owe. In fact, you have to make single monthly payments to the settlement company until you accumulate the settled amount. However, the settlement company will charge you an amount as a professional fee!
You can use the help of several faith-based organizations to pay off payday loans!
For example, Exodus Lending, a Minneapolis-based nonprofit organization, helps combat predatory payday lending in Minnesota.
It pays off your payday loan(s) and gives you 12 months to repay Exodus! Moreover, you don’t need to pay any interest or any other charges for that period.
Credit union payday alternative loan
Some credit unions offer small, cheap loans called Payday Alternative Loans (PALs). PALs are usually offered by the credit unions which belong to the National Credit Union Administration (NCUA).
Usually, membership in a credit union is determined by factors like where you live, work, or worship.
You need to meet the following criteria to remove a PAL:
- Your loan amount should range from $200 to $1,000
- You have to be a member of the federal credit union for at least 1 month
- The term of the loan must range from 1 to 6 months.
- The federal credit union can charge an application fee only in the amount needed to recoup the actual costs associated with processing the borrowers’ application, up to $20.
- The PAL can’t be rolled over.
The maximum interest rate of a PAL is 28%, which is almost one-fourteenth of the average APR of a pdl!
However, pdls can be beneficial to you in certain instances. But you should know how to manage your pdls efficiently to avoid getting into the debt trap!