How to settle payday loans?
When you need money and do not have cash on hand, you can get a loan and one type of loan is payday loan. Also referred to as cash advance loan, it is an unsecured small loan with a short term. It does not matter whether the loan repayment is related to the borrower’s payday or not.
Who takes out a payday loan?
For people who need quick cash before their next paychecks; payday loan is the answer to take of care of those unexpected emergencies. Payday lenders rarely check your credit making payday loans very attractive to people with poor credit. In addition, the loan application process is fast and funds are often released quickly after online negotiation.
Who are payday lenders?
Financial firms provide short-term loans to borrowers to be paid back as soon as the client receives his/her next salary. This type of loan appears to carry low interest rates but when you calculated the amount annually, that is very high. Payday loan firms know that they are the only the credit option for people in need of cash although critics consider that these loans place many borrowers in a high-interest debt cycle.
Payday loan requirements
The basic requirements for a payday loan application are similar:
- Meet the minimum age requirement in your state (18 years old in most states);
- Possess an open active checking account;
- Show proof of income; and
- Have a valid phone number.
How do payday loans work?
For example, you need to borrow $300 for a hospital bill from a payday lender. But first, you have to fill out a post-dated personal check for $340 (plus $40 for finance fee), payable to the lender. When applying for a payday loan online, you have to enter your complete information. The lender then advances you $300 for a set period, usually 14 days. On the due date, the lender will encash the $340 post-dated check. However, you have to pay additional fees if at the end of the term your debt is not fully paid.
Who uses these types of loans?
Many Americans use payday loans every year according to Pew Charitable Trusts. The fact is that anyone who owns a checking account and has a steady income qualifies for a payday loan. It appears that borrowers who are without credit cards and savings accounts resort to this type of loan. Consequently, payday loans are attractive to people with no credit or credit problems.
The Pew reported that payday borrowers share common characteristics: they are mostly renters with no home of their own; low earning capacity of less than $40,000 a year; and have not finished a college degree. They are often separated or divorced individuals with children and African-American in ethnicity.
According to that same report, the average borrower takes out at least eight loans of $375 and spends $520 on interest alone by the time the initial loan is repaid.
What are its benefits?
Payday loans can be a good tool for the quick and easy borrowing of cash during an emergency if you don’t have other financial options. Payday loans are helpful for people who don’t have credit cards or savings available for an immediate and temporary financial need such as an emergency medical bill, sudden car repair or other one-time expenses. As much as the loans do not require a traditional credit check, they are used by people with financial problems.
Considerations before taking out a payday loan
Before you apply for payday loan, think it over carefully, especially if you have a poor financial capability of paying it back on time. If you’re short of cash this month, think whether you’ll have interest rates and fees to pay for next month. Consider whether getting a loan payable by installment is much better. If you plan for a payday loan, search a lender under the regulation of the Financial Conduct Authority (FCA). Before you go ahead with facilitating a loan, it is very important that you read those fine print carefully and determine if a payday loan will improve your financial situation. Keep in mind that if loan payments are not settled quickly, they become extremely expensive, so be careful.
Understand how payday loans work
Understand well how payday loans work. These loans are only a good alternative if you can guarantee to pay off a loan by the due date because the outcome would be very expensive requiring you to pay high interest rate. Payday loans are classified as short-term borrowing and must be repaid on a specific date, usually within one month or even less.
Payment with interest for a payday loan when not paid back on time. If you cannot afford to pay it back punctually, your best option is to roll over your payday loan. But again this comes with more interest and fees.
Upon taking out a payday loan, you give your lender authority to withdraw the money you owe plus interest from your bank account on the due date, either by a written post-dated check or by signing a certification allowing them to make deductions automatically from your checking account. If your fund is inadequate to pay for your account on the due date, you will add more payments to your lender and the bank.
Consider the effect on your credit score
When deciding whether to take out a payday loan to pay off other debts, think about how it will affect your credit score. If you are unable to settle payday loan, your account will be forwarded to collection that will be disastrous and very bad on your credit report. You can avoid dealing with collections by making monthly payments of your credit card debt.
Credit card debts have an effect on your credit score as well even if you do not default on your credit card payments but carrying a large balance may lower your credit score.
What happens if your payday loan is unpaid?
Like other loans, if you fail to remit monthly payment, it leads to payment of higher fees, stiff penalties, and even legal action. Automatic debit payments are used by most payday loans to take funds directly out of the bank including prepaid account so on top of everything overdraft fees end on top of you. If all of your funds are taken, you have no more cash to pay for your necessities like childcare, food, and utilities. And the worst development is the barrage of calls and threats coming from your debt collectors. These are all unpleasant scenarios; don’t let it happen for there are ways to settle the debt of payday loans.
How to settle payday loan debt
If you are not able to keep up your payday loan debt and cannot meet the monthly dues, you can negotiate for settlement with the lenders of payday loans. Get rid of your debts and settle your payday loan debt by negotiating with them to allow you to pay a smaller amount of the balance you owe. Find the best way to settle payday loan so you can escape from the payday loan trap and stop harassment of collecting agencies and payday loan lenders.
You have to coordinate with lenders of payday loans or collection agencies and you can try to settle your bills on your own. Make sure you know how much is your total debt by checking your personal finance and credit report to find out which bills are unpaid and whether the accounts are able to pass the period of Statute Of Limitations (SOL).
In case you don’t feel comfortable negotiating with lenders, you may take advantage of settlement services. You are enrolled by these services to a settlement program so you are required to stop paying your payday loan companies to save a certain amount every month. When you’ve accumulated enough cash for several months, the negotiator at the settlement company communicates with the lenders or whoever holds your accounts so that they agree to accept an amount less than what you owe. Search details on the workings of debt settlement and study the pros and cons before you enroll in it.
Study steps to take for payday loan debt settlement
Follow these steps before enrolling in a payday loan debt settlement program:
- Calculate the payday loan amount
First of all calculate your total payday loan amount by gathering all the documents and then list the names of the lenders, the amount you owe to each lender, penalties, interest rates, late fees, etc. Check if you will be able to pay the loan amount on your own.
- Go through your state payday loan laws
Be familiar and knowledgeable with your state payday loan laws; if not, then you should know about them now. Each state has its own payday loan laws; better check whether your lender is following those rules. A good knowledge of payday loan laws of USA is important before paying any money to your lender.
- Check the license of your lender
Does your lender have a license to do business in your state? If not, then you have a reprieve since that is a violation and you are no longer required to pay the interest rates and fees. You only have to pay the principal amount.
- Place a hard debit check on your account
If you are not able to pay your loan or your lender is withdrawing illegally from your checking account, you may put a hard debit check on your account. You can also ask the branch manager of your bank to close the account, but this is not a wise move.
Once your checking account is closed, your lender will surely file a lawsuit against you for violating the terms and conditions of the contract. This may cost you a lot of money for a large amount is needed to pay the attorney fees and other court-related fees.
Selecting a trustworthy settlement company
- Check the fee structure of the company. Under the new settlement laws, every debt settlement company is required to charge fees in proportion to the settled debt amount. So, if this settling company is not following the rules, then doing business with them will put you at risk.
- Check the certifications whether the debt negotiators of the settlement company are certified by IAPDA. When debt negotiators have sufficient knowledge on law settlement, they get their IAPDA certifications.
- Watch out for the affiliations as good settlement firm will be affiliated with organizations like TASC, BBB, etc. You find out if the firm is a bonafide member of United States Chamber of Commerce.
- Check the performance of the company to make sure you work with a settlement company that has a good success rate. Visit the company’s official website and gather as much information about the company. Read their testimonial sections if they have one and know their clients’ testimonials if they are satisfied with their services.
- Find out whether the settlement company offers any service guarantee to their clients. If positive, then check the assistance they will provide if the settlement work is not sufficient to relieve the burden of your debt. Check if fees are refundable by the company if they are unsuccessful in settling your payday loan debts.
- Consult your family – You can always go to your family members and ask their opinion about the settlement company you’re considering to work with. Meanwhile, you can request them to recommend a good settlement company found in your state.
Aside from the points mentioned, find out if the company had been following the newly-enacted settlement laws by the Federal Trade Commission. For example, under this new enactment, settlement companies cannot charge any fees before the settlement of at least a single account of the consumer. They are not also allowed to make false claims about their services. Work only with a settlement company that follows all the given rules and regulations.
You got rid of payday loans, what next?
After you settled payday loan debt, make sure there is no next time. To start cleaning up your credit, a smart thing to do is sign up for a free credit report. The best way to ensure not to fall into any mistakes is to make a regular credit check and constantly improving your credit score.
You can also sign up for credit repair or search for a debt consolidation loan to help you pay off all of your debt including personal loans. This is a big step you are taking by following the right direction towards financial security.
Knowing how to settle payday loans will get you out of payday loan debt as well as other loans, although it seems daunting, it’s worth all your efforts and hard work. Learn to take control of your finances, save money as much as possible and start a plan for a secured financial future — it is a difficult plan but financial security is a reward worth striving for!