In this article, we will be taking a closer look at some of the problems associated with same day pay day loans companies, the alternatives and how you can avoid using them.
What Is A Same Day Pay Day Loan?
A same day pay day loan is a form of credit that is marketed as a quick and easy alternative to the more traditional loans that you can find in all of the major banks. There is often no paperwork to sign, no credit checks are undertaken and they usually promise that the money will be in your account within minutes. However, they have come under a lot of criticism from various quarters, including charities that help people in debt, for their constant targeting of people who are having financial difficulties. Lenders who offer payday loans will more often than not, offer their loans to be paid back after a 28 day period, yet they disguise their extortionate interest rates under the cover of a monthly fee.
Yet if you were to take that monthly fee as an annual percentage rate, you will be shocked to discover that, the APR could well top the 4000% mark. Of course, the lenders say that because the loans are designed to be repaid fairly quickly, that APR figures are not as relevant as they are for loans spread out over 12 months or more. That may be true; however, borrowers can get in to difficulties if they miss a repayment, or ask for a payment extension, due to the addition of hefty late fees and rollover charges.
The Bad Reputation’s of Payday Loan Companies.
The increasing bad publicity that same day payday loan companies have been getting, has had the effect of making some companies attempt to distance themselves from that particular financial sector. However, these companies who are promoting themselves as an alternative to payday loan companies are often found to be offering the same high interest rates as the payday lenders themselves. Some loans companies are even tempting customers with the promise of cash back, should they take out a loan, and make their repayments on time. Unfortunately, some of these lenders are advertising their loans as a solution to the problem of paying for Christmas presents, holidays and other luxuries. They are even targeting larger loans to people who may want a new car, or money to improve their homes.
Andrew Hagger of Moneynet says: "I could understand someone paying these interest rates if they were desperate and their gas or electricity was going to be cut off or they needed to get the car through the MOT to get to work, but to borrow at these rates to pay for flights abroad and Christmas presents is crazy ñ Christmas can be fun without spending a fortune trying to keep up with the Jones’s. It simply isn’t worth getting into debt over."
Alternatives To Payday Loans
Credit unions are a realistic alternative to same day pay day loans, as they do not charge high interest rates or fees, and the interest can be as low as 1% each month, however, you will be expected to save a small amount of money with them before you start applying for credit.
A logbook loan is where you take out a loan by using your car as security. Logbook loans are another bad idea, and they should be avoided at all costs, as they also charge high interest rates often running into 3 figures. A logbook loan is a loan that you secure against the value of your car, so the lender will only offer you an amount that matches the value of your car. You will be required to hand over the logbook to the car for the duration of the loan, and failure to repay the loan, could result in you losing your car.
Credit Card Companies
One alternative, if your credit rating is poor but not catastrophically poor, is to apply to a credit card company that offers credit cards to people who have poor credit histories. These cards do come with a higher interest rate than standard credit cards, and there are unlikely to be any reward schemes for using it, however, make your payments on time, and you will see an improvement on your credit score.
Is The End in Sight For Same Day Pay Day Loans?
The answer to that is, probably not, however, the tide does seem to be turning as more tales of woe emerge from people who have taken out same day pay day loans. In fact, in 11 states in America, the practice of pay day loans is illegal; however that does not stop people from falling head long into the debt trap in the other 39 states. In an article featured on getrichslowly.org, a recent New York Times report included this tale of a man who is stuck in the debt trap thanks to same day pay day loans: “Mr. Milford is chronically broke because each month, in what he calls “my ritual,” he travels 30 miles to Gallup [New Mexico] and visits 16 storefront money-lending shops. Mr. Milford, who is 59 and receives a civil service pension and veteran’s disability benefits, doles out some $1,500 monthly to the lenders just to cover the interest on what he had intended several years ago to be short-term “payday loans.”
The Big Banks Are In On It Too!
It is not just storefront payday lenders who are in a position to offer short term loans, secured against a future paycheck, some of the mainstream banks want a piece of the short-term loan action. Wells Fargo for example, offers what they call a “Direct Deposit Advance”, which can be obtained through their ATM machines. This service is only available to those people who have direct deposit set up on their account, and they have to have at least $200 being deposited every 35 days. One man, Marc Hedlund, gave his account of his experience in using Wells Fargo’s Direct Deposit Advance service, and his story is strikingly familiar to those people who use storefront same day pay day loan companies:
“While I’ve never gone to any of the storefront [same day pay day loans] places, for a couple of years, I was a very frequent user of a similar service offered through Wells Fargo ATMs. Called “Direct Deposit Advance,” the Wells program offered you up to $200 advance on your next paycheck, as long as you had direct deposit set up on your account. I think the fees for a $200 advance were $20. My situation was nowhere as bleak as the stories in the article, but I had exactly the same bad cycle: every paycheck, the first thing I would do is go to the ATM and take an advance on the next paycheck. After this had gone on for a while, I realized that I had been doing it every paycheck for more than a year.Over the course of a year, I took 26 advances at a cost of $20 each ó a total of $520. What did I get for that? For one paycheck, I had access to $200 more. That’s it ó after that, each advance only served to pay off the previous advance. I paid $520 paid to get a short-term loan of $200.”
Mr. Hedlund was lucky, his situation was not as desperate as other people’s and when he realized that he was paying a high price for an advancement on his paychecks, he managed to make a few changes in his spending habits, and break the cycle. Yet Mr. Hedlund’s story brings home the impact that same day pay day loans can have on the lives, and the finances of the borrowers. If Mr. Hedlund, a man who could have managed without the advancement on his next paycheck, got caught in the trap, what hope do people who are in desperate need of instant cash have?
The Bottom Line
Getting into financial difficulties can happen to anyone; however, short term loan deals are by far and away the worst option for those people who are desperate for some cash in an emergency. There are alternatives out there, such as putting money into a savings account during the times in your life where lack of money is not a problem. Putting money into a savings account as an emergency fund means that you avoid having to go to a storefront payday lender if a financial emergency arises. If you notice a same day pay day loans lender moving into your district, then try to fight it, as they are a business run by financial predators, which target the needy and the vulnerable in communities they know have a large population of people on low incomes. However, it is not just storefront payday lenders that need to be watched, short-term credit comes in many guises, and it is easy for even the most financially aware people to find themselves caught in the debt trap.