Payday loans provide immediate access to funds for those who have cash emergencies. As an alternative to borrowing from a friend or retirement fund, many people look to these convenient services to gain access to emergency funding. The programs allow the person to take out a short-term loan at a high interest rate and repay the loan in several installments. The payments are drafted immediately from the person’s account on the day the person is paid.
Although this is intended to be a short term solution, a person can easily land in a payday trap where he or she is unable to completely pay off the loan. Many critics of this form of lending consider it predatory and discriminatory in nature. These loans are often marketed to low income households or people in vulnerable financial situations. The people will have a difficult time paying back the loan because of the high interest and limited income. Twenty-five percent of payday loans are made to people on social security. It’s not the loan itself critics are concerned about; it’s the interest rate. Lenders can charge over 100 percent or more for these loans. This makes this type of loan one of the most expensive loans available to consumers.
Recently, a bill was introduced to address the payday loan, which is considered a form of predatory lending. The bill would cap the rate a lender can charge for payday and other short-term loans. If the “Protecting Consumers from Unreasonable Credit Rates Act” passes, lenders will no longer be able to charge more than 36 percent for these loans.
Avoiding the payday loan problem is difficult for some people. People who have encountered financial challenges due to a layoff or unexpected expenses may have limited savings available to cover financial emergencies. Turning to the payday loan is often the only option many people have. Most people can get out of this dangerous cycle with the right support.
A debt consolidation program can help a person organize their debts and pay them off. In addition to consolidating the individual’s debts, the person can receive personalized coaching to help them learn better money management and planning habits. The coach works one on one with each individual to help them realize their financial goals. People who successfully complete the debt consolidation program and take advantage of the personal finance counseling available will be able to create a brighter financial future for themselves and their families.Read More