Business and Finance

Posts Tagged ‘Annual Percentage Rate’

In United States, ads in radio, television, newspaper, internet and hoardings all refer to payday loans. These loans may be handy but they come at a very high cost due to interest charges. These loans are known in various names like payday loan, check advance loan, post dated check loans, deferred deposit check loans. But their purpose are more or less same i.e. to offer small, short term, high rate loans.

The procedure in a nutshell, the borrower writes a check payable to the lender for an amount equal to the borrowing amount plus the fees. The company or lender pays the borrower the amount minus the fees against the check received and the fees are a percentage of the principal amount of loan taken.

Cash advance loan taken by giving a post-dated personal check is an expensive credit option. As an example, someone interested to borrow (say) $100 . He will have to pay the interest of (say) 15% for 14 days of loan period. That means he will have to write a post-dated check of $115 for getting the loan of $100. Once the stipulated period of 14 days expire, the lender will then cash the check and the borrower must ensure that the money is made available in the bank account or he will have to pay the cash.

However, if the borrower desires to extend the period, he may roll over the check by paying the fees or interest for another term of 14 days and so on. This way the interest or fees will mount in arithmetical progression. That means this payday loans suits to those who will be meticulous in repayment in scheduled time and borrow for exigencies only. One should remember and understand, as per the Truth and Lending Act, the lending Company must disclose the cost of the payday loans. The borrower must get in writing all the information about finance charges and annual percentage rate (APR).

Payday loans are widely discussed amongst salaried people and others, for its advantages and disadvantages. There are debates between the consumer group and financial companies especially lending companies. The former clamoring that the system is draining money from poor and enriching the powerful and rich while the latter affirmed that it is the ultimate in lending for customer’s convenience.

Therefore, the question is whether the pay day loan is good or bad. If we look into the positive side, it is the only easily and quickly small loan available for immediate and sudden needs although the rate of interest is high The Banks have no interest to cater to this segment at all. The personal loan facility that they offer is extremely cumbersome and time taking. The procedures sometime bordering to humiliation and the period of waiting is so much that the very purpose or intent of the loan is lost.

There are other aspects also which favors payday loan over others. A credit card deadline or check bounce prospects will amount to more overall financial losses. Further, by avoiding a bad credit report will keep your records clean for future bigger loan facilities from the bank. So, even apparent one time extra interest payment in payday loan is beneficial comparatively.

In the disadvantage side, the rate of interest is one on the higher side. It may be lower than credit card, but typical loan interests are much lower than payday loan. There are community loan, credit unions etc. which gives loan at a much cheaper rate. Payday loan customers are mostly uninformed citizens who are not aware of such facilities and gets easily impressed by the attractive ads of the lending companies.

Another disadvantage of the payday loan is, there are many one sided terms in the contract like automatic loan renewal on payday , hidden fees, high rate of interest for late payment etc. which are tactfully hidden in words in the contract . Some lending companies do not reveal their interest rates, which is illegal and forbidden by law. So, the borrower in proper assessment of contract clauses before finalizing the transaction should exercise extreme caution.

Payday loans, also known as payday advances, paycheck advances, or cash advances, are given to a borrower against their future paycheck(s). Listed below are some of the pros and cons of this type of loan.

The Pros:

- Payday loans allow people to get up to $1500 within 24 hours depending on your country.

- People that have a bad credit history, or even no credit,will most likely be approved for a payday loan as long as they can prove some type of income.

- The only proof that you will need is one that verifies that you are employed and will be able to repay the loan amount.

- For whatever the reason you need this money, a payday loan allows you to get the cash almost instantly.

- Payday loan applications are very simple. All that they require are a few personal details and your banking information.

- The payday loan process is very fast and takes less than 30 minutes, after which the loan amount is deposited into your bank account usually within 24 hours. They can even be applied for by fax, email, or online.

The Cons:

- The biggest disadvantage of payday loans is the very high interest rates. The interest rates are typically in the range of 15 to 30 percent of the amount of the loan for a two-week period, which translates to rates ranging from 390 percent to 780 percent when viewed as an annual percentage rate. The interest rates are so high that it can make borrowers feel like they are losing their next paycheck just to payback the loan.

- Another big disadvantage of payday loans are that they can be made in only small amounts. The maximum limit for payday loans varies from country to country, anywhere from $500 to $1500.

- For people opting for payday loans, it is important to realize that they are accountable for paying back the entire loan amount plus interest, as failing to do so can affect your credit score negatively.

- Fourteen days is normally all that you get to payback the loan. If an extension is needed, you will end up paying a much higher amount than what you originally borrowed.

- Seldom are the payday loan terms and conditions clear to a borrower that is in need to borrow money quickly. You may end up paying charges double or even triple, particularly when you allow your lender to deduct your loan charges directly from your salary.

Hopefully you will never need a payday loan, but if you do, you should check the authenticity of the firm offering the loans. You should also know who offers the best loan terms, so please do your due diligence before taking out one of these loans.

Of the many consumer rights under several different categories, the consumer credit protection act is one of the most powerful privileges you have. It is the most useful tool in your war against credit errors and debt dealings. When used, you can resolve nearly all credit and debt difficulties.

The Consumer Credit Act regulates consumer credit that has contributed much in attaining America’s present financial status. In the U.S, you can purchase anything you want, provided you agree to repay the loan amount with interest. Among the households that hold balances on credit cards, the average amount kept is approximately 2,000 dollars. The amount does not include the added financial burdens of mortgages, rents and car loans. Economists find that Americans owe around 2 trillion dollars in credit card and other debts.

The act’s protections are applicable to contracts between traders and individuals, individual traders, partnerships, and unincorporated organizations. But it does not apply to accords between traders and business bodies such as limited companies. The act has made lots of major changes, including the introduction of rules on credit advertising, the form and content of agreements, the way of computing the APR (annual percentage rate) of the total charge for credit, the extortionate credit bargains, and the formalities to be made in the event of default, termination, or early settlement.

The objective of the Consumer Credit Act is to protect consumers from possible exceptionable practices. It also guards them from ineptitude on the part of those who give credit on a commercial or professional basis. Many consumers make mistakes and are ignorant of what privileges they have to ensure that those mistakes are corrected. The consumer credit laws are little good if you don’t employ them. The laws require that each dealer who makes regulated contracts should hold a license given by the office of fair trading. Debt advisors, credit brokers, and others are also needed to keep licenses.

You have seen the ads:

Get unsecured personal loans, bad credit not a problem!

Have bad credit? Cash Advance Available!

There are certain lenders which target people with bad credit. Cash advance or payday advance companies do a lot of advertising. They can afford it. A typical bad credit cash advance or payday loan costs the borrower $10 per $100 borrowed. Since the loan term is two weeks, this fee is equivalent to an annual percentage rate or APR of 261%. Just for comparison the average APR charged by credit card companies is around 13%.

The Federal Trade Commission (FTC) and other government agencies have tried to shut down some of these companies which offer unsecured personal loans. Bad credit is hard enough to deal with; consumers do not need to become stuck in what some have referred to as a “debt trap”. If you have bad credit, cash advance or payday advance companies may seem like the only solution if you are strapped for cash. But consider this question; if you are strapped for cash today, will you be able to repay the loan at your next payday? If not, the bad credit cash advance company will tell you that it is “no problem”. They will simply charge a “roll-over fee” which is typically equivalent to the initial fee. The FTC reports that in some cases consumers have paid as much as $60 to borrow $100.

If you are searching for unsecured personal loans, bad credit is your real problem. If you are considering a bad credit cash advance or payday loan, then bad credit is your problem. You might want to look for credit repair options.

In the meantime, there are other things that you should try before you consider “unsecured loans, bad credit not a problem”. Why do you need the money right now? If you are having trouble paying your rent, utilities or mortgage, then call your creditors and ask for an extension. Generally, if you call them, they will work with you. If you are active duty or retired military, then there are emergency relief societies to help you. If you are not military, then ask a friend or family member to loan you the money before you consider a bad credit cash advance company. If, as a last resort, you must take a bad credit cash advance or payday advance loan, then take only what you must have to help you get through to your next payday. Else you could end up stuck in a debt trap.

Unsecured personal loans, bad credit cash advance loans, car title loans and unsecured credit cards for people with bad credit are not the long-term solution to your problems. Repairing your credit is the long term solution. Visit Credit Fix Solutions for more information.