Examples of Payday Lenders and Their Alternatives

Payday lenders offer short-term cash advances, but they often come with high interest rates and fees.

Check City, a payday lender, charges an average APR of 652% and fees of up to $30 per $100 borrowed.

Some people turn to pawn shops, which allow them to borrow money against the value of an item they own.

TitleMax, a pawn shop, charges interest rates of up to 240% APR on loans.

Borrowers may also consider credit unions, which offer lower interest rates and fees compared to payday lenders.

Credit unions, like Navy Federal Credit Union, offer loans with APRs of around 18% and no fees for late payments.

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Payday loans are essentially short-term, high-interest loans that can be found in underbanked neighborhoods, on the internet, or through personal networks.

These lenders don't require background checks or credit reports, making it easier for people to get approved. They'll lend large sums of money with the intention of gaining high levels of interest in a short time.

Loans from payday lenders can charge interest rates far above any regulated rate, sometimes even doubling the original loan amount in a short period. For example, a $10,000 loan might require $20,000 to be repaid within 30 days.

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Active duty servicemembers and their dependents have protections on loans through the federal Military Lending Act (MLA), which includes a cap of 36 percent on the Military Annual Percentage Rate (MAPR).

75% of Americans are in favor of more regulation of payday loans, according to a Pew Charitable Trust study.

The CFPB wants payday lenders to verify the consumer's income, major financial obligations, and borrowing history before making a loan.

Eleven states, as well as Washington, D.C., Puerto Rico, and the Virgin Islands, either don't allow payday lending or restrict it to conform with the interest rate caps placed on consumer loans.

Loan maximums are enforced in most jurisdictions that permit payday lending, typically ranging from $300 to $1,000.

Alaska sets a loan maximum of $500 with a two-week duration and a maximum fee of $15 per $100 loaned, or 15% of the loan amount, whichever is less.

The safest loans follow national credit union guidelines or limit payments to 5% of income and limit loan duration to six months.

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If you're in a pinch and need cash quickly, consider joining a credit union. Credit unions are a great place to start looking for a small loan, and membership has become easier to join.

Credit unions can be more lenient about qualification standards for loans, and some local lenders might be willing to loan small amounts at competitive rates. Credit-card cash advances are another option, though the interest rates are in the double digits.

You should shop around and compare APRs and finance charges from all available sources before making a decision. This way, you can avoid high loan rollover fees that payday lenders typically demand.

Here are some alternatives to payday loans:

By taking these steps, you can avoid the high interest rates and fees associated with payday loans and find a more affordable solution to your financial needs.

In spring 2018, the federal Office of the Comptroller of the Currency announced that banks would be able to write loans smaller than $5,000 without standard underwriting rules.

These loans, previously known as deposit advances, were generally repaid quickly, often before the borrower's next paycheck.

However, new banking rules ended the practice in 2014 after regulators warned that deposit advances sometimes led to crippling debt.

The 2018 revision will allow banks to return to the business, but with some caveats: the CFPB is scheduled to impose strict regulations on loans of 45 days or less.

The CFPB's acting director even expressed a desire to reevaluate that rule in June 2018, leaving the future of these small loans uncertain.

Here are some key facts about small loans from banks:

If you're struggling to make ends meet, there are alternatives to payday loans that can help. Credit unions and small loan companies are a good place to start looking for a small loan. They're often more lenient about qualification standards for loans and offer competitive rates.

Credit-card cash advances are another option, though the interest rates are in the double digits. However, they're often less than those available from payday lenders. It's essential to shop around and compare APRs and finance charges from all available sources.

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Protecting yourself is crucial when dealing with debt. If you're having trouble making a payment on time, contact your creditors or loan servicers. They may be willing to work with you, offering a payment plan that can help you avoid a payday loan.

Non-profit credit counseling agencies can also provide valuable advice at no or low cost. You can find one by searching online or asking a credit union, housing authority manager, or an employer's personnel department for suggestions.

Creating a budget is key to managing your finances. Start by making a balance sheet with cash inflows and outflows. Knowing where your money is going is essential to making smart financial decisions. Consider eliminating any expenses that aren't crucial, like cable or subscription services.

Some checking accounts come with overdraft protection, which can help prevent the credit damage caused by bounced checks. However, be sure to understand what overdraft protection costs and what it covers.

Payday loans are often used by people who have little or no access to conventional credit, with an estimated 19 million households relying on them nationwide.

The simplicity of borrowing and easy access to cash make payday lending appealing, particularly to working people who struggle to make ends meet paycheck to paycheck.

Most borrowers use payday loans for regular expenses like rent and utilities, not just unexpected emergencies as advertised.

Payday lenders often target low-income minorities and charge exorbitant compounding interest for cash advances.

They seldom offer borrowers workable repayment plans, and in many states, operate with few regulations.

The average payday loan borrower spends $520 in fees for what originally was a $375 loan, according to the Consumer Financial Protection Bureau.

In 2014, the CFPB found that most payday loans are made to borrowers who renew their loans so many times, ending up paying more in fees than the amount they originally borrowed.

The payday loan business thrives in states that don't put caps on interest rates, with more payday loan outlets than McDonald's restaurants and Starbucks coffee shops combined in 2008.

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Debt cycles are a vicious cycle that can be difficult to escape. Payday lenders promise a debt cycle, where the amount owed on a loan can soar to $500 in just 20 weeks, with an annual interest rate of 391%.

The average payday loan is $300 and lasts five months, with borrowers paying $459 in fees. This is a staggering amount, especially when compared to banks and credit unions, which charge about $13 in fees for similar loans.

To calculate the APR of a payday loan, you can use the following formula: divide the finance charge by the amount of the loan, multiply by 365 (number of days in a year), divide by the term of the loan (typically 14 days), and move the decimal two places to the right and add the percent sign.

Many customers are unaware of the high interest rates and focus more on the so-called fees, which can be substantial. For example, the difference between the APR of a payday loan and a bank or credit union loan can be substantial.

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The problem is that many customers don't believe they qualify for personal loans or have maxed out or closed out their credit card accounts. As a result, they turn to payday loans to cover emergencies or recurring monthly bills.

A typical borrower takes out 10 loans and pays 391% in interest and fees. This is the debt trap that payday lenders rely on to generate revenue.

The majority of payday borrowers function in this way, either paying a fee to roll over a loan for two more weeks or taking out new loans, immersing them into a dangerous cycle of debt.