The payday loan trap: don't get caught

This company offers the typical cash advances and payday loans. Please help us keep our site clean and safe by following our posting guidelinesand avoid disclosing personal or sensitive information such as bank account or phone numbers. At the same time, payday lenders will start calling you and sending letters from their lawyers. Why is NerdWallet interested in payday loans? You may be able to borrow from families or friends, or get an advance on your paycheck from your employer.

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Payday loans provision is one of the most popular services in the US today. It enables people to get access to financing quickly. It is a perfect alternative for people who would like to get short-term credit. Citizens of the US take hundreds of payday loans, each day. . Although payday loans are advertised as quick, short-term loans, the average payday loan borrower is in debt for a full five months each year. Loan fees are huge. Average loan fees are $55 every other week, and the average borrower pays $ per year for multiple loans of $ Payday loan alternatives to avoid. Long-term payday installment loans: Available at both storefronts and online, these loans extend repayment terms to as long as three years. You don’t need good credit — they often advertise themselves as no-credit-check installment loans — but you typically must meet the requirements of a payday loan. Interest charges mount quickly: A $2,, three-year loan at % .

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To qualify for a payday loan you typically need an active bank account, ID and proof of income. You can be rejected for a payday loan, despite having income and a bank account, for several reasons, including:.

Online payday lenders tend to charge higher rates and often claim exemption from state rate caps. Within a few months, borrowers can end up owing more in interest than the original loan amount.

Lenders will continue to try to withdraw money from your account, sometimes breaking amounts into smaller chunks to increase the chance the payment will go through.

Each failed attempt can trigger bank fees against you. At the same time, payday lenders will start calling you and sending letters from their lawyers. They may even call your personal references. A lender may try to negotiate a settlement with you for some part of the money owed. Or the lender may outsource the loan to a debt collector, which could file a civil lawsuit. If the lawsuit is successful, the resulting court judgment against you remains public for seven years and can lead to seizure of your assets or garnishment of your wages.

What to do if you cannot repay a payday loan. Most people who take out payday loans say they have other options, according to a Pew survey. Borrowers say they could do the following — all of which are typically better options than a payday loan:.

Sometimes they even have better marketing than credit card companies do. Near my home there is a fairly new plaza where I walk by at least once a week. One of the units there is a payday loan company. This company offers the typical cash advances and payday loans.

Two new marketing posters were put up by the cash advance company and I really wanted to comment on them: The payday loan companies will give you that loan with a big smile on their face.

These companies prey on vulnerable people that have nowhere else to turn for money. Sometimes a thought provoking conversation about debt and about your money management with a good friend is needed. They will then apply it towards your outstanding debts. Or it may be that you will need to pay the company you are working with on a monthly basis, and they will then in turn disburse the funds to your payday lenders.

While each option has pros and cons, experts tend to say that working with a third party or credit counselor to set up a payday loan consolidation program is the better route. It tends to be lower risk and more successful as the consumer if working with a third party the credit counselor who can help steer them onto the correct path. The programs established by another company will also usually offer better repayment terms and lower interest rates.

If you contact a company or organization for assistance, they can provide you with significant help and the pros and benefits of using them include:. The key to being successful is that no matter which option you select, you need to be diligent and follow thru with it. So the deciding factor is really the borrower themselves. The individual needs to be committed to paying off their debts and improving their financial situation.

The bottom line is that many experts say that payday loan consolidation programs and companies offer many borrowers and consumers their best option to get out of the cycle.

Studies show that the success rate is higher when adhering to that approach.