Applying for a payday loan can seem like an easy way to get some quick cash. However, the laws and regulations governing short-term credit lending should always be looked into before agreeing to any type of loan.
Before signing a payday loan agreement make sure you read the terms and agreement and if confused ask the lender questions about what it all entails. Payday loans generally have much larger interest fees associated with them as compared to banks, credit unions, and personal loans. Payday Lenders also have to follow a set standard and rules and failing to do so can lead to litigation and severe penalties.
Laws Governing Payday Loans
If you are considering taking out a payday loan to pay off some unforeseen expenses, they are certain laws that you should be aware of. These laws should be made clear to you before the signing of an agreement.
- Payday Lenders can charge a maximum of $15 per $100 you borrow
- Clearly specify when the borrowed amount is due in full
- The total amount including interest that you would have to repay
- The annual rate of interest your 14-day loan would amount to
If you agree to these terms lenders would then proceed to ask you for personal information. This is mandated by law as per the Consumer Financial Protection Bureau (CFPB) and include:
- Proof of income (salary or deposit slip would suffice)
- A valid bank account
- A valid home address
- Must be over the age of 18
If the lender wants to further confirm that the information is accurate they can call your place of employment but are not allowed to contact any family members or friends. Never give out the contact information of family members or friends.
They are certain laws that payday lenders must abide by according to federal rules and regulations. These are as follows:
- They can’t lend you more than 50% of your monthly income
- No collateral is required for a payday loan
- No guarantor is needed either and should never be provided
- Lenders can not offer a new loan before the last one is paid
- They also must never offer other unrelated services unless asked for
The payday lender should always provide you with a written loan agreement that has all the necessary details regarding the cost of borrowing and repayment time. When visiting any payday loan shop always ask whether they are licensed or not and if they abide by CFPB regulations.
The Payday Loan Process
One of the greatest advantages of payday loans is the fast processing times that allow you to get the cash you need almost instantly rather than waiting on the lengthy processing times of banks and credit unions.
If you have a valid ID, active checking account, some proof of income and are over the age of 18 you are applicable for a payday loan. See if you can get a payday loan today!
The loan processing time after qualification can less than 15-minutes which is a huge advantage when you need cash urgently, and the cost of borrowing can often be lower than taking out a credit card advance or accumulating overdrafts on your chequing accounts.
When Is A Payday Loan Useful?
Payday loans are especially beneficial when you need money urgently to pay for an unforeseen emergency or expense. When time is of the essence, short-term credit lenders can be true lifesavers. By taking out a payday loan instead of overcharging your credit card or accumulating overdraft fees, you can actually end up saving money in the long-term.
Paying minimums on your credit card can lead to huge costs of borrowing over time, and it is the same with bank overdrafts. Even though the annual percentage rate (APR) of payday loans can be frighteningly high at first glance, they are actually quite reasonable if you have the ability to pay them off on time.
The other great advantage of a payday loan is that it doesn’t require any type of credit check and therefore, doesn’t affect your credit score. Securing a payday loan can in no way affect your credit score even if you are unable to pay the full amount on time. Hence, people are using payday loans as a way to pay off traditional loans on time so as not to impact their existing credit score.
Payday lenders are also generally always open to extended payment plans if don’t have the means to pay the full payment on time. The law dictates that lenders offer extended payment plans to a customer in case of inability to pay back on time.
Applying For A Payday Loan
Before applying for a payday loan, it is always advisable to first assess whether a payday loan is the best credit option for you. Depending on your credit history and score, you may be able to get short-term credit on much lower interest rates from your existing bank or credit union.
One should also realize that a payday loan is not meant for paying off reoccurring expenses, although this, unfortunately, is the main reason for the majority of people that apply for a payday loan. You can easily get caught in a financial trap if you borrow money to pay off monthly expenses and have no way of making up the difference the following month.
Be smart when it comes to borrowing. Knowing your rights and all the terms and conditions of borrowing can help you make safer and smarter financial decisions. The laws governing this industry are still evolving to help better regulate short-term lending. As of today, payday loans are still a highly popular option when it comes to securing short-term loans quickly and easily.