In many places in the country, finding a retail payday lender is as easy as walking a block or two. These storefronts continue to increase in numbers in places where payday lending is allowed. At present, only one state, Georgia, prohibits the loans, but some smaller municipalities have placed their own type of ban on these retailers.
For some consumers, especially those with less than perfect credit, retail payday lending sites feel like the only option. While the loans are very expensive, if you use them wisely, they are an option for short term, unexpected financial needs.
Here are three tips to help you use payday loans as they were intended and to choose the best retail payday lending location.
Choosing a Retail Payday Lender
While most retail payday lenders function similarly, they are not all the same. Of course, you should check their fees and interest rates, but there are other things to consider as well. While you might not think that customer service is important when choosing a retail payday lender, you do need to be confident that the lenders will keep their word and are on top of things enough to not make mistakes that could cost you time and money.
For example, one lender cashed the check left by the borrower one week before the loan was due. This caused several checks to bounce. The lender paid back all of the overdraft and bounced check fees eventually, but it was still a huge hassle getting it all straightened out.
Also, if you choose a fly-by-night or independent retail payday lender, it is tough to know how they will act should you, for any reason, be unable to pay the loan back on time. Will they call you at work every day? Will they call your boss?
The best thing to do is select a retail lender that is part of a national chain. While this is no guarantee that you will be treated well, there is most likely to be strict policies that the store will be required to follow.
Payback
One of the best tips about retail payday lending is to pay the loan back early if at all possible. The amount of money that you could save by doing this is significant. For example, if you borrow $500 for 14 days, you may have to pay back $575. If you pay the loan back in one week, however, you may only have to pay back $537.50. Every day early you can pay back the loan, or even part of the loan, will mean more money in your pocket.
Keep in mind that only the interest for loans will be prorated. If any fees are included, such as processing or application fees, those are not likely to be reduced by paying the loan back early.
Rolling Over Loans
Here is a tip about rolling over loans: Don’t do it. This is a trap that many who use payday lending services fall into. This is an example of what happens:
They borrow $250. On payday, they must pay back $287.50. They pay that amount and then turn around and borrow the $250 again. This means they the borrower is going to continue to pay these fees each month.
It is important to remember that retail payday lending is NOT intended to be a long term solution. When you continue to rollover the loans it can quickly turn into a cycle that is difficult to break. Instead, payback the loan in full and do not borrow again unless it is absolutely necessary.
Some states have enacted laws that require a certain waiting period of between one and seven day before they can take another loan after paying one off. If your state has no such law, pretend it does!
Some consumer groups feel that retail payday lending should be banned completely. Others think that each consumer has the right to make decisions for themselves about such financial matters.
No matter which side you are on, it is important that those who choose to use retail payday lenders do so in a way that it will not further their financial distress.
Choose your lender carefully and use the loans sparingly and only when other options have been exhausted. Pay them back as soon as possible and do not borrow again right away. Those are a few tips to help you use payday loans without hurting your financial situation.
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The retail payday lending industry has seen a growth spurt in many states and there are no signs of it slowing. While there are many who are opposed to the types of lending practices employed by payday lenders, consumer continue to turn to them when short of cash.
While the loans can be helpful for short term financial needs, it is very easy for borrowers to find that they are further in debt if they do not use the loans responsibly. Below are three commonly asked questions about retail payday lending.
Why Are the Interest Rates So High?
People are often shocked to learn that payday loans carry an APR of up to 1300%. Because the loans are short term, usually with a duration of between one week and 30 days, the amount of interest charged works out to an extremely high APR. Below is an example of the cost of a payday loan. Of course, the fees and interest rate will vary state by state, and this is just an example.
Amount borrowed: $500
Amount to be paid back: $575
Length of Loan: Fourteen days
APR: 435%
If that same loan was for a term on one month, the APR would be 186%. If it were for one week, it would be 1028%.
To some, having to pay a $75 to borrow $500 doesn’t seem like too much until they see the APR. This high interest rate is one of the main things that have consumer groups up in arms. Some say that the retail payday lenders should have to follow the same regulations as other types of lenders. A credit card company, for example, could not legally charge such high interest rates.
The reason that payday lenders charge a high interest rate is, in part, because of the risk of the loans they are writing. Payday loans are granted without a credit check so even people with very poor credit can walk into a payday lender and leave with a loan.
Also, some payday lenders say that because of the short terms of their loans, it would be nearly impossible for them to make any money if they did not charge such high rates. If payday lenders had to stick to a more reasonable APR, let’s say 25%, they would only make $10 on a $500, 30 day loan.
Many payday lenders say that if regulations require them to charge much lower interest rates that they will have no choice than to leave those states.
How Should I Use Payday Loans?
Payday loans are intended to help with short term, unexpected financial needs. For example, if your car breaks down on Monday, but you won’t have the money to pay for the repairs until payday on Friday, a payday loan would be one option to fill in the gap.
What gets some people in trouble with these loans is that they try to use them for the long term by continually rolling over the loans. Each time they pay one loan back, they immediately borrow again. This is an expensive cycle and is not the proper use of payday loans.
Also, because payday loans are so quick and easy to get, many turn to them as a first option. Instead, view them as more of a last resort. Consider other options such as a personal loan from the bank, a cash advance on a credit card or using the overdraft protection on your checking account. All of those are less expensive options than retail payday loans.
I Can’t Pay My Payday Loan Back on the Due Date. What Should I Do?
If you cannot pay the loan back on the due date, you need to contact the payday lender as soon as possible. Remember, in most cases the lender will have one of your checks made out in the full amount of the loan. If you do not pay the loan back, they are going to deposit the check. If there is not enough money in your account to cover the check, you will end up paying hefty fees both to the lender and to the bank.
In many cases, the payday lender will be willing to work with you if you cannot pay the entire amount on the due date. Depending on the state in which you live, you may be eligible for a longer term payback option. Even if you are not, the lender may work with you to come up with terms that will allow you to pay the loan back in more than one payment.
Ignoring the problem will not make it go away and will end up costing you more in the end. As soon as you know there may be a problem paying back the loan on time, talk to your lender.
The retail payday loan industry has a bad reputation. Still, for those with no other option, these loans can be helpful if they are used responsibly.
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More and more consumers are finding that retail payday lenders are a quick and easy answer to short term financial needs. Finding a reputable payday lender is easy for some, depending on where they live. Many prefer retail payday lenders rather than borrowing online. They would rather deal with a real person and a local store than an anonymous Web site. Below are some tips for finding a payday lender.
Searching for a Lender
In many cities, payday lenders are located on just about every corner. In states where the loans are allowed, lenders will tend to target areas with high populations of low income people. That is because that group provides the largest chunk of payday lender’s business.
In some states, especially those with strict laws regarding payday lending, you may have a harder time finding a lender. In states that do have strict laws, you might still be able to find a few lenders, but be prepared to drive to another part of the state if necessary.
Usually, payday lenders will be willing to lend to anyone who resides in the state in which they do business so even if the lender is in a different part of the state, you will still be able to use them.
Check the Better Business Bureau
Most people who borrow from a retail payday lender do not bother to check the Better Business Bureau. While most people understand the terms of the loans, it is a good idea to check to see if anyone has reported illegal or abusive collection practices.
As will be discussed in the next section, not all payday lenders are the same. Doing a quick check with the BBB may help steer you away from a lender that uses practices that cross the line.
Also, it won’t hurt to do a quick Google search using the lenders name. This is another method that may help reveal some unsatisfied customers.
Aren’t They All the Same?
No. All retail payday lenders are not the same. Unless you have personally dealt with a lender, it is going to be difficult to know what doing business with that lender will be like. In addition to the steps mentioned above, you can also increase your chances of having a good experience by choosing a national lender, such as Advance America.
Choosing a larger lender does not mean that you will save money on interest, as almost all payday lenders charge the maximum allowed by whatever state they are in. It does mean, however, that there is likely to be corporate policies in place regarding collection practices and other issues.
While you will, of course, still have to pay back the loans on time, you are less likely to run into abusive lending practices if you choose a lender with a national reputation rather than an independent operator who cares about nothing except getting their money back.
What if Payday Lending is Not Allowed in My State?
If you live in one of the growing list of states that do not allow payday lending, you will not be able to find a retail payday lender. It is important to note that there is a difference between states that do not allow the loans and those that strictly regulate them.
Residents of some states mistakenly think that they live in a state that prohibits payday loans when in fact they live in a state that allows them, but more closely regulates or monitors the loans.
Also, some states that legally forbid the loans actually have payday lenders still openly conducting business. The laws are on the books, but are simply not enforced. In those states, borrowers are usually required to sign a promise to not participate in class action lawsuits.
If you do live in a state where retail payday loans are not available, you will have to find another option as payday lenders will only do business with residents of the state in which they operate.
If your state does have payday lenders, it is easy to find one. Just make sure that you choose wisely both in which payday lender that you choose and in how you use the payday loans.
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Payday lending is big business in the United States. While some states have placed restrictions on lenders (and one state, Georgia, has banned this type of lending altogether), the loans are still a hot topic among consumer protection groups that say that the loans target low income consumer and trap borrowers in a cycle of renewing the loans. Below is some basic information about retail payday lending.
Retail payday lending businesses, as opposed to online payday lending, are located throughout the country. In some places, there are several such businesses within a small area.
The business model is simple. Offer small, short term loans that must be paid back within one or two of the borrower’s pay periods. No credit check is needed, making this type of loan very attractive to borrowers who have less than perfect credit.
All that is usually needed to qualify for a payday loan is proof of employment, proof of residence and an active bank account. When you visit a retail payday lending location for the first time, you will be asked to fill out an application that will provide the lender with your basic information. Again, no credit check is required, but the lender will verify bank and employment information.
Once your information has been verified, you will be able to borrow an amount that is based on your income. Approval is instant and you will be able to leave the retail payday lending establishment with either a check or cash in the amount of your loan.
In most cases, you will be required to write out a check in the amount required to pay back the loan. Then, if you do not return to the lender to pay back the loan as agreed, the check will be electronically debited from your account.
While there are also several Internet payday lending sites, many borrowers prefer retail payday lending as they are able to talk with someone face to face and have the money or check in their hands when they leave.
While the number of retail payday lending locations continues to increase in some areas, others see a decline as local laws make the cost of doing business in some states more than the lenders are willing to pay.
For example, when Virginia began to write stricter laws about payday lending practices, some of the biggest retail sites pulled all of their stores from the state. In the end, most Virginia payday lenders chose to stay and adjust to the new laws, which included limiting the number of loans allowed and a mandatory “cooling off” period between loans.
While these retail payday lending locations are convenient and qualifying for a loan is very easy, the cost of using payday loans can be high.
The interest rates these lenders charge is anywhere from 200% to 1300% APR. Even the lenders that claim to have a lower interest rate make up the difference by charging hefty fees. The cost of borrowing $500 can be as much as $150 for a 14 to 30 day loan.
Still, those who feel that they have no other option turn to these loans in increasing numbers. The number of borrowers using retail payday lending locations continues to increase. All the while, payday loan opponents continue to work to have stricter regulations placed on these lenders. Below are just two of many payday lending practices being addressed by consumer rights groups.
Interest Rates and Fees
This is usually number one on the agenda. Consumer protection groups say that retail payday lenders should not be allowed to charge interest that is higher than the maximum allowed for other types of lenders.
In Canada, new laws that took effect in late 2009 do not allow lenders to charge more than 23% and that include all fees. Those in the United States would like to see similar laws enacted in each of the 50 states.
Number of Loans
Many states have placed limits on the number of payday loans that a borrower can have at any one time. Also, many limit the number of payday loans one can have within a 12 month period.
Where there is no such legislation, consumers may have three or more payday loans at one time. That often means that they owe more in payday loans than they make in a month.
Retail payday lending will likely continue to grow in popularity. Where this option exists, it is well-used by consumers who feel they have no other choice for their short term financial difficulties. Still, consumer rights group will continue to work to eliminate these lenders or, at least, to stop allowing them to use methods that the groups feel are abusive to consumers.
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