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Payday Loans and Cash Advance: Pros and Cons - Mistakes and Traps to Avoid

Payday Loans and Cash Advance

Once you are interested in locating payday loans online it is imperative that you avoid the common mistakes and traps.

A payday loan or a cash advance loan is a loan for a short time. This book will reveal to you everything you need to know before applying for a payday loan or cash advance. This is must-know must-do information; ignore it at your own perils.

This is a complete guide to payday loans. Once you read this book you'll know exactly how to locate the most cost effective payday loan and how to get a quick approval.

Here's what you'll discover:

* The single most critical factor in obtaining a good payday loan deal
* A revealing look at the pros and cons of payday loans
* Before taking out a payday loan checklist
* How to get your loan applications accepted, traps and mistakes to avoid
* What to do if you're having trouble paying off the loan
* All these and much much more

You owe it to yourself and to your family to acquire this essential payday information. Get this guide today!

Checklist - Before Taking Out A Payday Loan

Although a payday loan may be a convenient short-term solution, it is inappropriate for long-term cash needs.

* Consider Alternative Solutions - Ask about delaying or making payment arrangements on your non-interest bills like telephone and utility bills. Talk to a friend or family member about borrowing money. Ask your employer for an advance on your paycheck.
* Comparison Shop - Comparison shop for the lowest fees and penalties.
* Borrow Only What You Can Afford To Pay Back - Borrow only as much as you can afford to repay with your next paycheck.
* Avoid Borrowing From More Than One Lender at a time.
* Know When Your Payment Is Due - Know when your payment is due and be sure to repay the loan on time and in full.
* Set Up A Budget - Plan for the future by making a realistic budget to help avoid the need to borrow for emergencies and unforeseen expenses.

Payday Loans Frequently Asked Questions

1. What does it mean to renew or roll over a payday loan?
Generally, it means you pay a fee to delay paying back the loan. This fee does not reduce the amount you owe. If you roll over the loan multiple times, it’s possible to pay several hundred dollars in fees and still owe the amount you borrowed. For example, if you roll over a $300 loan with a $45 fee three times before fully repaying the loan, you will pay four $45 fees, or $180, and you will still owe the $300. So, in that example, you would pay back a total of $480.
Some payday lenders give borrowers the option to roll over their loans if they cannot afford to make the payment when it’s due.

2. What costs and fees could I expect with a payday loan?
Payday loans generally charge a fixed fee on the amount you borrow. This fee may range from $10 to $30 for every $100 borrowed, depending on the lender and the maximum amount permitted in your state. A fee of $15 per $100 is typical, which equates to an annual percentage rate of almost 400% for a two-week loan. So, if you need to borrow $300 before your next payday, it would cost you $345 to pay it back, assuming a fee of $15 per $100.
If you renew or roll over your loan, you will be charged another fee and still owe the entire original balance. For example, if you pay a fee renewal or rollover fee of $45 you would still owe the original $300 loan and another $45 fee when the extension is over. That’s a $90 charge for borrowing $300 for just a few weeks.
In addition, if you don’t repay the loan on time, the lender might charge a late or returned check fee, depending on state law.

3. Is a payday lender required to offer me the lowest rate available?
No. Payday lenders are not required under federal law to offer a borrower the lowest available rate. Lenders generally offer payday loans at a fixed price. Many states cap the fees at a maximum amount, and some lenders may offer discounts in some cases. In general, payday loan prices vary from around $10 to $30 for every $100 borrowed. A fee of $15 per $100 is typical, which equates to an annual percentage rate (APR) of almost 400% for a two-week loan.

4. How do I repay a payday loan?
If you take out a payday loan from a storefront lender, you must either provide a personal check to the lender or an ACH authorization to electronically withdraw money from your checking account. You may be required to come back to the store to repay your loan. If you do not return, your lender might repay itself by presenting your check to your bank or credit union or withdrawing funds electronically from your account.
If you have taken out a loan online, you provide an ACH authorization for the lender to electronically access your checking account for repayment on the loan due date. So, while the way you repay a loan may depend on whether you took out a loan in a storefront or online, in general, you provide the lender a way to repay itself the full amount as part of the application process. This is done either by:

* Giving the lender permission to electronically take the money out of your checking account when the loan is due, through an ACH authorization
* Giving the lender a check for the repayment amount that they can deposit when the loan is due
Tip: Know how your ACH payment is set up. If you gave a payday lender permission to take money directly from your checking account, it is important to know exactly how much your lender will withdraw and when.
Some lenders might set up payments assuming you only want to pay a renewal fee on the loan’s due date and require you to take action several days before your loan comes due to pay it in full. This could result in you paying several rounds of renewal fees while still owing the entire original loan amount.
Make sure you understand how your loan will be repaid and how much the loan could ultimately cost you before agreeing to use this form of credit.

5. What do I need to qualify for a payday loan?
Generally, lenders require you to:
* have an active checking account,
* provide proof of income from a job or another source,
* show valid identification, and
* be at least 18 years old.
Some lenders might employ additional criteria, such as a minimum time at your current job or a minimum amount of income to qualify for a certain loan amount.

6. How will my payday loan be paid to me?
Many lenders will offer one or more of the following options:
* Pay you in cash
* Electronically deposit the funds into your checking account
* Give you a check
* Wire funds to you
* Put the money on a prepaid debit card
However, some of these options might carry an additional cost. If you have a preference, shop around to find a lender that will provide the money the way you want it.
TIP: Ask about added fees. Make sure you ask about any additional fees that you might have to pay for each of these options.

7. I was asked to sign an “ACH authorization” for my payday loan. What is that?
An ACH authorization gives the lender permission to electronically take money from your checking or savings account when your payment is due.
Tip: Know exactly how much will be deducted from your checking account and when. Read your loan documents carefully before signing them. Make sure you understand:
* How much would be withdrawn from your account
* Whether it's the full amount you borrowed or a renewal fee
* When the withdrawal would occur
* How you can revoke, or cancel, your ACH authorization
If you don't have enough money in your account when the lender attempts a withdrawal, your bank or credit union might charge you an overdraft fee to cover the payment.
If your bank or credit union does not cover the payment and the lender can’t deduct the full amount due, your loan will be delinquent. This might result in the lender charging you a late fee, and your bank or credit union charging you a “bounced check” or non-sufficient funds fee as well.

8. Can I end my "ACH authorization?”
Under the rules governing the ACH system for electronic withdrawals from consumer accounts, a valid “ACH authorization” must state clearly how it can be revoked (ended). All lenders using the ACH system agree to abide by these rules.
You should not sign an ACH authorization that does not say clearly how you can revoke it. If you have signed an authorization that does not contain instructions on how to revoke it, you may have a right to tell your bank or credit union to reverse any account debits that the lender made based on that authorization.

9. What is the difference between a payday loan and a deposit advance?
Payday loans and deposit advances are both short-term, high-cost loans. Some of the key differences are who makes the loans, how the loan is requested, and the mechanics of how they are repaid, which are discussed further below.
Payday lenders make payday loans online or to people who visit their storefront locations. In contrast, banks and credit unions that offer deposit advances generally do so only for their customers who have accounts with them and meet certain other eligibility requirements.
A payday loan is usually due to be repaid on the borrower’s next payday, which is often two to four weeks from the date the loan was made. The specific due date is set in the payday loan agreement. The borrower can either return to the payday lender to repay the loan or allow the lender to withdraw funds from a checking account.
With deposit advance, banks and credit unions will usually pay themselves back automatically when the next electronic deposit to the customer’s account is made, regardless of source, which could be much sooner than two to four weeks. If the amount of the incoming deposit is not enough to pay back the loan, the bank or credit union will repay itself out of subsequent deposits. Typically, if any loan balance remains after 35 days, the bank or credit union will automatically charge the customer’s account for the remaining balance, even if that causes the account to become overdrawn.
Both payday loans and deposit advances charge fixed fees that are usually much more expensive than many other forms of credit. A typical two-week payday loan with a $15 fee for every $100 borrowed equates to an annual percentage rate (APR) of almost 400%.

10. I need money now. Should I get a payday loan? What other options should I consider?
Before choosing a payday loan, take a minute to think about the costs and all your other options.
First, if you take out a payday loan, you will likely be charged a fee of between $10 and $30 for every $100 borrowed. A $15 per $100 fee is typical. So, if you have an emergency and need $300 today, you would have to pay back $345 in a couple of weeks, assuming a fee of $15 per $100 borrowed. If your budget is already tight, that may be hard to do. The payday lender may encourage you to pay just the fee and extend the loan another few weeks. In that case, you would spend $45 and still owe $345 when the extension is over – that means you’re spending $90 to borrow $300 for one month.
If you have an account at a bank or credit union, there may be less expensive alternatives available to you, especially if you have direct deposit or a stable credit history.
There may be even more alternative strategies available, including those that don’t involve taking out a loan. Some employers, nonprofit organizations, and community groups offer advances or emergency credit. And don’t forget about help from family or friends.
Another option might be to negotiate with the creditor or biller about the debt or bill you owe. A smaller repayment amount at the lowest interest rate will not only help make repayment easier, it may also allow you to start saving some money for the next emergency that will come along.

11. Does everyone pay the same amount for a payday loan, or will the cost depend on things like how much money I make?
Typically, a payday lender will charge every customer the same rate for a payday loan. Payday lenders generally charge a fixed price for every $100 borrowed. Many states cap the charges at specific maximums and lenders may occasionally offer discounts, but in general these fees range from around $10 to $30 per $100 borrowed.
While the cost to borrow may not vary, your income may determine how much you can borrow. Many states set limits on maximum loan amounts, but – depending on your income and other factors – a lender may not offer you the maximum amount.

12. If I want to take out a payday loan, do I have to put up something in return like if I went to a pawn shop?
No. Payday loans are considered a form of “unsecured” debt, which means you do not have to give the lender any collateral, or put anything up in return like if you went to a pawn shop.
Instead you will have to give the lender permission to electronically take money from your checking account, or provide a check for the repayment amount that the lender can deposit when the loan is due.
If you do not have enough money in your account when the lender tries to withdraw the payment, your bank or credit union will likely charge you fees for overdrawing your account.

13. I am having trouble repaying my payday loan. What can I do?
If you’re having trouble repaying your payday loan, one option may be to ask your lender if it will give you an extended payment plan.
An extended payment plan lets you repay the loan in smaller installments over a longer period of time. This option may be offered for free or might carry an additional fee.
Many states require lenders to offer extended payment plans under certain circumstances, and some lenders may also do so on a voluntary basis.
If you still have trouble making payments, or are not given the option of an extended payment plan, there are other resources that may be able to help you. For example, you may wish to speak with a credit counselor in your area or contact a legal aid attorney to discuss your options.

14. Why did my payday lender charge me a late fee?
When you took out your payday loan, you likely gave a check to the lender, or may have given it permission to take money from your checking account when the loan was due.
If you do not have enough money in your account when the lender attempts to repay itself, your bank or credit union may cover the payment and charge you an overdraft fee. If your bank or credit union does not cover the payment, the loan will not be successfully paid and you might be charged a “bounced check” or non-sufficient funds (NSF) fee by your bank or credit union and a late fee by the lender.
Many states specify the number of times a lender can charge these types of fees and the maximum fee amount.

15. How can I stop a payday lender from electronically taking money out of my bank or credit union account?
There are three things to consider when faced with this problem. First, do you think the transfer from your account is unauthorized (that is, you did not give permission or the lender is going beyond what you initially gave permission for)? Second, do you want to stop one or more payments out of a series you actually did authorize? Third, do you want to completely revoke (cancel) your authorization?
Unauthorized transfers - If you think that your payday lender is withdrawing more money from your checking account than you authorized, you should tell your bank or credit union that you are having trouble with “unauthorized transfers.” If anyone takes money out of your account without authorization, federal law requires the bank or credit union to take steps to stop that problem after you give them proper notice.

Stopping a series of transfers - You have some additional protections if your loan agreement calls for you to make regular electronic payments at repeated intervals, such as loans that are repaid through installments, and payday loans that are automatically set up to renew a certain number of times. You can stop one of a series of regularly scheduled payments by giving your bank or credit union oral or written notice at least three business days before the transfer is scheduled. The bank or credit union may require written confirmation of oral notice. They may charge fees for a stop payment.

Cancelling authorization - Under rules that all banks, credit unions and lenders agree will govern electronic transfers, you can also revoke any authorization that you gave a payday lender to take money out of your account. You should follow the instructions in the initial authorization that describe how to tell the payday lender to stop. If there are no instructions on how to tell the lender to stop, then the authorization may be completely invalid – but you should still tell the lender to stop taking money from your account. Specifically, you should say: “my authorization to debit my account is revoked." You must send these instructions to your lender in writing. You should also keep a copy to take to your bank or credit union. Then tell your bank or credit union that any further transfers are “unauthorized” and you want them treated that way – either stopped or immediately refunded.

16. Can a payday lender garnish my wages?
Your wages usually can be garnished only as the result of a court order.
If you don’t repay your loan, the payday lender or a debt collector generally can sue you to collect. If they win, or if you do not dispute the lawsuit or claim, the court will enter a judgment against you. The judgment states the amount of money you owe, and allows the lender or collector to get a garnishment order against you.
Wage garnishment happens when your employer holds back a portion of your wages for your debts. If a payday lender attempts to garnish your wages without going through the legal process described above, notify the payroll department at your employer of this. You may also contact a legal aid attorney for assistance.
Tip: Don't hide from bad news. Don’t ignore a lawsuit summons or other notices from a court or the lender, or the initial court proceedings against you. If you do, you could lose the opportunity to fight a wage garnishment or it could become much more difficult to do so.

17. I heard that taking out a payday loan can help rebuild my credit or improve my credit score. Is this true?
Payday loans generally are not reported to the three major national credit agencies, so it is unlikely to impact credit scores that take this data into account.

18. Will a payday lender pull my credit report before deciding whether to give me a payday loan?
Some payday lenders will pull a credit report or seek other information from major national credit agencies or specialty credit agencies before giving you a loan.
They may want to confirm your identity, or see if you have defaulted on other payday loans or recently declared bankruptcy.

19. I didn’t find out about my payday loan’s APR or when I would have to repay it until after I received the money. Shouldn’t someone tell me this ahead of time?
Your lender must disclose the annual percentage rate (APR) and other costs before you agree to the loan. If you were not given this information, your lender violated the law. The APR is information you need in order to fully understand what your loan costs and how you must repay it. It also helps you compare this option to others you may be considering.

20. I started to apply for a payday loan but changed my mind and did not finish the application. The lender deposited the money into my account anyway, without my permission. What can I do?
A lender should not deposit funds into your account without your permission. You typically give permission by signing a loan document or agreeing to the loan through a form on a website. Also talk to your bank or credit union to determine how to return the unwanted funds to the lender.

21. My payday lender told me I could be arrested if I failed to pay back my debt. Is this true?
No, you cannot be arrested for defaulting on a payday loan. Nevertheless, if a lender has obtained a judgment against you and you ignore an order to appear in court, a judge may issue a warrant for your arrest. You should never ignore a court order. If you get a court order to appear, you should go to court and provide any required information. You may want to consult with an attorney to help you with your court appearance.

22. I’ve paid hundreds of dollars in fees, but the payday lender claims I still owe them money. How can this be?
If your loan is renewed rather than repaid in full on its due date, you are only paying the fees associated with keeping the original loan amount outstanding (or unpaid). Renewing by paying just the fees does not reduce the principal amount you owe.
For example, let’s say you took out a $300 loan with a $45 fee. When that loan comes due on your next payday, you will owe $345. If you are given the option to renew the loan, you’ll pay a $45 renewal fee, but still owe the full $345 on your following payday. If you keep opting to pay just the $45 renewal fee, you could end up paying hundreds of dollars in fees while still owing the original $300 you borrowed many weeks ago.

TIP: Consider repayment before taking out a payday loan. Before taking out a payday loan, it’s important to figure out whether you’ll be able to repay the full amount with a single paycheck and still have money left over to pay your other expenses, like housing, transportation, and food costs.

23. My payday lender told me my loan would only cost 15 percent to 17 percent but my loan documents say the APR is almost 400 percent. My lender says the APR doesn’t matter. What is APR and how should I use it?
The annual percentage rate (APR) is the standard way to compare how much loans cost. It lets you compare the cost of loan products with different fee structures on an “apples-to-apples” basis. It also takes into account the amount of time you have to repay the loan.
To calculate the APR, the interest rate and fees are compared to the amount you borrow and extended over a year. This standard amount of time is how you are able to compare the costs of a credit card to a six-month installment loan, or a two-week payday loan. It is also why APRs are often different from simple interest rates.
For example, if your payday lender is charging you a $15 fee for every $100 borrowed, that would be a simple interest rate of 15 percent. But if you have to repay the loan in two weeks, that 15 percent finance charge equates to an APR of almost 400 percent because of the very short term.

Here’s why: Consider the daily interest cost, $1.07 (or $15 divided by 14 days), then multiply that out for a full year (365 days, so $390.55). So, borrowing $100 would cost you $390 if the term were extended to one year – that’s 390 percent of the borrowed amount.
By comparison, the cost of borrowing the same $100 on a credit card with a 15 percent APR is $15 for one year, or about 57 cents for two weeks.
You don’t need to worry about the math. Just keep in mind that the APR does matter because it provides a shorthand way for you to compare the cost of two or more loans. And, payday lenders must disclose the loan’s APR and other costs before you sign the loan agreement.

TIP: Focus on APRs. If you want to compare the cost of 3 payday loans offers, focus on the APRs.

24. If I take out a payday loan, could it hurt my credit?
Payday loan activity generally does not show up on the credit reports you get from the three major national credit reporting agencies (Equifax, Experian, and Trans Union). However there are specialty credit reporting agencies that collect some of your payday loan history. It is possible that lenders may access this information when considering you for future loans.

In addition, if you don’t pay your loan back and your lender sells your payday loan debt to a debt collector, it is possible the debt collector would report this debt to one of the major national credit bureaus. Debts in collection could impact your credit score.
Likewise, some payday lenders bring lawsuits to collect unpaid payday loans. If you lose a court case related to your payday loan, this fact could appear on your credit report and may affect your credit score.

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