Before Borrowing from Payday and Auto-title Lenders Press Pause and Consider All Your Options
In 2017, it has been reported that 25% of U.S. households have no emergency savings. With emergency funds nonexistent for so many, more consumers are turning to payday and auto-title lenders as an alternative resource for quick cash.
Payday loans are small cash advances (generally $500 or less) at a high cost that is typically due on your next payday (in 2 to 4 weeks). Loan fees are often set by state usury laws, but not always. Even where fee amounts are legislated fees may range from $10 to $30 for every $100 borrowed. For our $500 example, fees may run from $50 to as much as $150 (usually deducted up front from the loan funds you receive). You can check on-line to find the status of payday and auto-title lending laws in your state.
Payday loans do not require a credit check to borrow money. Due to the quick lump sum repayment required by payday loans these products are perceived to carry a huge risk to the lender. In response, payday lenders charge larger fees and higher interest rates than a traditional loan. A typical interest rate on a payday loan is 400 percent or above. A study released in January from The Financial Stability Partnership found that in Nebraska, a typical borrower will pay about $800 after totaling all fees and interest for a $300 loan. Many consumers who use payday loans will use one to pay off another, continuing this cycle until they are no longer able to maintain paying the ever increasing fees to keep the accounts ‘current’ and out of collections.
It is important to consider all options available when emergency money is needed. A person could:
Borrow money from a family member or a friend.
Speak to a certified credit counselor about financial options.
Find a local bank or credit union that provides small loans. Also, more and more non-profits and credit unions are attempting to satisfy the demand for quick, small balance, short term loans currently filled by payday and auto-title lenders.
“No matter what option you choose to help you out of a tight financial spot, make sure you do your research. Do not borrow any money or receive help from any organization before you know if they are reputable. Check with your Attorney General or the Better Business Bureau,” said Michaela Harper, Director of Community Education at Credit Advisors Foundation.
Finally, once you address your current emergency cash shortfall, start planning for next time. Make saving a habit each time you are paid. Set aside funds each payday before anything else – even if it is a very small amount like $10. Build a consistent habit. Then next time you need some emergency cash (and it is a true emergency) start with your emergency savings to meet the need.
For more information on this topic please contact one of our certified credit counselors or your Account Manager.
