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Payday loans are usually a last resort for the poor. That does not mean they must be exploiters.

Payday loans serve as a last resort for people with poor borrowing history and low savings, with punitive interest rates of 300% or more on an annual basis – an order of magnitude higher than the most expensive credit card . And predictably, many borrowers do not repay their payday loans when they are due (usually within 30 days), resulting in strong penalties that force many borrowers to take loans after loans as their debt mounts. That is why 14 states have ruled that this form of non-bank lending is inherently abusive and has effectively proscribed it.

However, payday loan branches are ubiquitous in states where they remain legal; For a charge, they outnumber McDonald’s franchises there. It is estimated that 12 million people take payday loans every year, with about $ 24 billion borrowed in 2015. Alarmingly, most of that volume is in repeat loans to people who loan several times in quick succession. The industry can characterize payday loans as short term financing for people with unexpected bills to pay but the data suggest that they have become an expensive crutch for those who do not earn enough to make ends meet.

On Thursday, a major federal regulator proposed new rules designed to eliminate the debt trap represented by payday loans and other short-term loans. The long-awaited proposal by the Office of Consumer Financial Protection could reduce the volume of payday loans by more than half, the office estimates, while reducing the number of borrowers by only 7% to 11%. This is because the rules primarily aim to curb the serial lending, leaving the payday loans as an option for those who only need a short-term boost to cover a single expense.

Politicians have known for years about the threat of payday loans pose to desperate borrowers, however federal bank regulators did nothing because payday lenders are out of their jurisdiction. That left the states to set the rules, resulting in a crazy quilt of requirements and limits that were easy for lenders to evade through online or foreign operations.

The CFPB, which Congress created as part of the 2010 Dodd-Frank Act, has jurisdiction over payday lenders, and the rules it has proposed will apply regardless of where the lenders are located. These rules would extend to short-term loans an important principle that Dodd-Frank applied to mortgages: with one notable exception, lenders have to make sure that a borrower can repay them before issuing the loan. Today, payday lenders simply verify that an applicant has a paycheck and a checking account, which are submerged directly in withdrawing the full amount of the loan and their fees when they are due. Under the proposal, lenders would have to consider the borrower’s full financial picture, including other debts and living expenses.

You might think that lenders would do this type of “underwriting” anyway, but payday lenders do not because they can extract payment from the borrower’s account ahead of other creditors. And if the borrower’s checking account does not have enough to cover the debt, lenders often pass the principle on a new loan and tactic at more rates. Such rollovers are common; More than half of payday loans are issued in sequences of 10 or more consecutive loans.

Some consumer advocates complain that the exception in the proposed rules would allow payday lenders to make up to six loans to one borrower per year without checking repayment capacity. But that option is designed to ensure that credit remains widely available. And to guard against these loans becoming debt traps, the rules would prevent them from being rolled over into new loans unless the borrower pays at least a third of the amount owed, with no more than three consecutive loans allowed. This restriction could expose payday lenders to more defaults, but that would have the welcome effect of encouraging them not to make loans that can not be repaid on time.

The main complaint of payday lenders is that the proposal “would create financial havoc in communities” by eliminating a huge amount of short-term loans. But as states that have banned payday loans have found, more affordable alternatives arise when payday loan stores disappear. The proposal of the office also seeks to clear the way for longer-term loans with less heinous interest rates which are a better fit for people who can not afford to pay off an entire loan within 45 days. That’s one area that state and federal politicians should focus on too, so better safer alternatives emerge for the millions of people who have been customers of payday loans simply because they have no choice.

19 Ways to Find Cash Fast, More Savings

When an unexpected expense appears, many people find themselves in a bond. In fact, a recent Federal Reserve survey found that about half of respondents said they would have to sell a membership or borrow money to cover a $ 400 emergency expense.

The solution is, of course, an emergency fund. Even $ 500 in the bank can get you out of a pinch; Having three to six months of expenses is even better. (See “How to build an emergency fund”). Having that kind of money available means that you can survive without pledging valuables, sell your blood or rely on the generosity of a friend or relative.

It takes time, discipline and extra money to build that cushion. Meanwhile, here are strategies to make money fast today, increase your income continuously and cut your monthly spending. Combined, they will help you stay out of these kind of links in the future.

Get your hands on extra money today

1. Sale of old cell phones. There is a good chance that you are sitting in cash here: A study published last year found that half of consumers have at least one old cell phone piling up dust. You can sell your old phone at sites like Swappa and Gazelle, but to get cash today, an ecoATM is your best bet. Consider selling old MP3 players and tablets, too.

2. Sell ​​your unused gift cards. In 2015, an estimated $ 973 million in gift cards was not used, according to research and consultancy CEB TowerGroup. Most online gift card exchanges take a few days (you have to send the card, then expect a check or direct deposit), but Coinstar Exchange offers instant cash for cards valued at $ 20 or more. You will get a little less – the company pays up to 85% of the value of the card, while sites like Cardpool pay up to 92% – but quick money could be worth it.

3. Paste something. As a way to borrow money, pawn shop loans are not great. But they are quick, and if you find you can not afford it, the pawn shop simply keeps the item you used as collateral. That is much better than the ruined credit and the calls of the debt collectors. You can often sell directly to a pawn shop, too, instead of borrowing against an item. Jewelry, musical instruments, firearms and modern electronics are better.

4. Work today to pay today. Googling that phrase appears without scarcity of results, some legitimate, some not. There are companies, such as LaborReady, LaborWorks and LaborFinders, that can help you locate your jobs immediately, and you will be paid at the end of the workday.

If a company like this is not available in your area, try Craigslist jobs or concert sections, which often have similar publications for short-term work in food, cleaning and general labor services.

Ask for help

5. Community Loans and Assistance: Local community organizations can offer loans or short-term assistance to help with rent, utilities or other emergencies. NerdWallet has compiled a database of payday loan alternatives available to residents in nearly two dozen states. Local churches may make small loans at very low rates. Community centers and non-profit associations in your area can also offer small loans.

6. Bill abstention: Some creditors like utilities or cable television companies do not charge interest. Find out if they will accept late payments. Use whatever money you save from not paying those bills to cover emergency needs. If you can not pay consumer debts like auto loans or mortgages, explore your options with the lender first before resorting to high rate toxic loans.

Borrow from yourself

7. Payroll Advance: Ask your employer for a cash advance on your salary, which generally does not cost you any fee and is refunded by deduction. Some companies also offer low-cost loans to workers in crisis situations. You might consider ActiveHours, an application that offers workers the reimbursed advances in a lump sum on interest-free payday, but does ask for a donation and requires access to their bank account and worksheets.

8. Borrowing from Retirement Accounts: A 401 (k) loan or IRA is not without risk. You can borrow from your IRA once a year if you put the money back within 60 days. If your employer allows 401 (k) loans – not all do – you can usually borrow up to half of your account balance, up to $ 50,000, and you have five years to pay for it. However, if you do not make payments for 90 days, it is considered taxable income. And if you quit or lose your job, you usually have to pay the 401 (k) loan soon after.

9. Borrow from life insurance: If you have a life insurance policy that has cash value (sometimes called permanent life insurance), you can borrow against it and have the rest of your life to pay for it. If you do not pay, the insurance company subtracts the payment money from the policy when it dies. You can not borrow against a term life insurance policy, which is the most common type.

Ask for a loan

10. Credit Card Cash: If you have a credit card and the account is in good condition, a cash advance credit card is a much less expensive option than a payday loan. You will pay a fee, typically around 5% of the borrowed amount, plus interest, which can be around 30%.

11. Look for an alternative payday loan. Some credit unions offer small short-term cash advances known as Alternative Payday Loans, or PAL. Federally funded credit unions can not legally charge more than 28% of APR on these small short-term loans. That rate can not be called low cost – but it is much better than payday loans, which have three digit APR.

12. Take out a personal loan. Some lenders may finance a personal loan in one day; If you have good credit, you will probably have many options. If your credit is a challenge, you will need to find a lender who not only offers fast cash, but also accepts bad credit. The bad credit rates through conventional lenders exceed 36% APR. You may find other lenders offering quick financing without a credit check, but you will pay three-digit interest rates. Do not fall in love with her.

Increase your income in the future

13. Rent a room. Sites like Airbnb are not just for people who have vacation homes to rent when they are not using them. Many of the ads on the site are for extra rooms – or even shared rooms – in the owner’s home, which means that you could stay in the place while you bring some cash, especially if you live in a reasonably desirable. (Check local ordinances to make sure short-term rentals are allowed.)

Creating a list on the site is free; There is a 3% service charge when making a reservation. You can easily estimate how much you can do on the Airbnb website. For an example, the site estimates a one-week private rent in relatively rural Staunton, Virginia, could fetch $ 725. The service frees payment to the host 24 hours after guests sign up.

14. Moonlight like a dog sitter. Technology is on its side here, too, with sites including DogVacay and Rover that match pet owners with dog sitters and hikers. You can choose to host the dog or stay in the owner’s house (and – here is an idea – rent your place through Airbnb while you are gone). Rates are between $ 20 and $ 60 per night in most areas, although they may skew more or less depending on the location and amount of work involved.

15. Become a pilot of delivery or delivery. These are jobs that you can do at night or on weekends, using your own car (and, unfortunately, your own gas). Companies like Uber and Lyft match people willing to pay for a ride, and delivery services like OrderUp and Postmates pay you to deliver takeaway food and other items. How much will you do? Here is a look at what the Uber and Lyft drivers win in various cities; The range seems to be $ 10 to $ 15 per trip. OrderUp says its drivers earn $ 20 per hour, and Postmates boasts $ 25 per hour.

Reduce your monthly spending

16. Lower your insurance premiums. One of the dirty secrets of the car insurance industry is that premiums for the same driver for the same coverage can vary by the hundreds of company dollars to the company. Each company does its own math; That’s why it’s worth comparing car insurance quotes.

If you like your carrier, it may be worth your time to review the dozens of discounts you may have available. You can get a 10% discount or more for everything from getting good grades to completing defensive driving training for at least three years without an accident.

The same goes for homeowners insurance: Purchases can save 10% to 15%, as do discounts for things like having a home security system, staying free of claims or being a non-smoker . And many insurers offer discounts to have both car and owner or tenant policies with them.

17. Consolidate your debt. If you are struggling to keep up with multiple debt payments, you may be able to consolidate those balances – from credit cards, medical bills, store financing or other charges – and reduce your payments with a personal loan. There are even some lenders who can finance the loan within a day. Refinancing a $ 5,000 worth of debt from a 10% interest rate to an interest rate of 5% could save more than $ 800 in interest over the life of the debt.

If you have a good credit score, you can make a balance transfer of high interest rate credit card debt into a new card with an introductory 0% interest rate. Just make sure you can pay the balance before the balloon rate at the end of the introductory period.

18. Refinance your student loans. Borrowers are now benefiting from low interest rates and a competitive private student loan refinance market, and there are refinancing options available for most credit ratings. It is worth checking if a refinance could save money (especially when the average borrower through NerdWallet’s refi platform saves more than $ 11,000).

19. Change your cell phone plan. If you value the money in your pocket on a luxury phone, look at cell phone providers who are offering rock rates these days. FreedomPop offers basic voice and data service for free. The catch with these services is that they often have to buy a definitive phone, or bring their own. So maybe you do not want to sell that old phone yet. You can easily find a prepaid cell phone plan for $ 30 a month or less as well.

Can Payday Loans Damage My Credit Score?

Payday loans are often used by people who are in a financial bind and looking for temporary relief until their next paycheck, like many government workers who were furloughed due to the government shutdown this week. In most instances, this option is exercised if no other immediate resources, such as credit cards or funds from a savings account, are available.

 Because lenders do not typically run a credit check during the application process, the process of requesting a payday loan does not have an effect on your credit score. Instead, they inquire about your current employment status and source of income. Lenders also mandate that you submit a post-dated check to cover the amount of the loan once funds from your employer are disbursed into your account on payday.

How Payday Loans Can Affect Your Credit Score

In the event that the post-dated check you provided to the payday lender does not clear the bank and you default on the loan, your credit score could take a hit, unless you have another source of funds available (or arrange a payment plan or extension) to cover the balance. Defaulting on a loan often results in the debt being sold to a collection agency and reported to each of the three credit bureaus. Some lenders even go as far as filing lawsuits, which will also show up in the public records section of your credit report if the judge rules in their favor.

What If You Can’t Repay?

If you have taken out a payday loan and realize prior to the due date that you will be unable to remit a timely payment in full, contact the lender immediately to request a payment plan or make other arrangements. Although this will add more interest and fees (which can make the loan even harder to pay off), it prevents the loan from going into default and damaging your credit score for the time being.

Other Alternatives

On the other hand, if you are considering taking out a payday loan, be sure to exhaust all other remedies available before moving forward. Payday loans are often accompanied by excessive finance charges and fees, which can get you deeper in debt if you repeatedly use them to bail out when financial emergencies arise.

Therefore, it is best to consider the following alternatives before turning to a payday loan:

  • Making cuts to the variable expenses in your budget to free up funds;
  • Borrowing funds from friend or family member;
  • Using a credit card that has a low interest rate;
  • Negotiating due dates for other debt obligations with lenders;
  • Taking a cash advance from your credit card if the fee is manageable;
  • Overdrawing your account temporarily if protection is offered by your bank;
  • Obtaining a small loan from your local credit union or financial institution.

If none of these options work for you, be sure to only borrow as much as you can repay.

You should also work towards achieving financial stability so that you can rely on your emergency fund when unexpected problems arise.

Don’t Ignore Your Credit

You may find it difficult to face your credit while you’re having financial difficulties.  However, it’s important as ever to stay aware of your credit during times like this so you can deal with any potential problems — including errors, collection accounts or signs of fraud — that can show up on your credit report.  It’s also important to keep an eye on your credit score, which can indicate a problem with your credit.

Payday Loans vs Personal Loans

Payday loans and personal loans may sound alike, but they’re hardly the same thing. For starters, a payday loan operates on a much shorter time frame — it is typically due on your next payday, according to the Consumer Financial Protection Bureau — while a personal loan usually carries repayment terms of two to five years. There are other characteristics that distinguish these two types of loans, so if you’re considering one or the other, be sure to keep reading. In this article, we’ll break down the advantages of a payday loan versus a personal loan and how each may affect your credit.

Payday Loans

A payday loan is a short-term, high-cost loan that gives cash-strapped consumers the money they need until their next paycheck. Payday loans are typically made for small amounts, so they aren’t ideal for covering major expenses.

When you apply for a payday loan, the lenders will ask about your job status and sources of income. You may also be required to give them access to your checking account or submit a post-dated check to cover the amount of the loan, plus a finance fee, once your paycheck is in your account. When you apply for a payday loan, a lender will not typically check your credit, so a payday loan will generally not impact your credit score.

If you don’t pay off the loan in its entirety, you’ll be hit with additional fees and finance charges. According to the CFPB, the cost of a payday loan, or its finance charge, may range from $10 to $30 for every $100 you borrow. “A typical two-week payday loan with a $15 per $100 fee equates to an annual percentage rate (APR) of almost 400%,” the agency notes.

A payday loan may sound like a convenient way to get cash for consumers who don’t have savings shored up or credit cards. But it can be a very costly way to borrow. Because of the high fees and finance charges associated with payday loans, there’s a risk of falling into a long cycle of debt. If you feel you are short on money or won’t be able to cover the cost of the loan before your next payday, a payday loan may not be the best option for you.

Personal Loans

A short-term personal loan generally has a fixed interest rate and fixed repayment period. However, unlike payday loans, lenders make an inquiry into your credit when you apply for a personal loan, and each loan inquiry can lower your credit score a little bit.

If your loan is unsecured, or not backed by collateral like a home equity line of credit, you may find yourself stuck with a high-interest loan. That’s because lenders hike up their interest rates in order to protect themselves against borrowers who can’t make their payments on time. Another downside to personal loans is that if your credit isn’t up to snuff, you may be saddled with a high-interest rate. On the plus side, it can be easy to shop for a personal loan, and they usually don’t require that much documentation.

Credit unions can be good places to shop for a personal loan since they may have more lenient lending requirements and may be more willing to offer a short-term personal loan if you have less-than-stellar credit. Local banks and credit card companies can also be great sources for personal loans, especially if you’ve done business with them before and proven yourself to be a reliable customer.

Before shopping for a personal loan, it’s a good idea to check your credit score. Once you know your credit score, you can research a lender’s minimum credit requirements to see if your score will qualify you for a loan. Rather than apply for a number of personal loans, which would lower your credit score, we recommend applying for loans from one or two issuers that you know and trust.

Many online lenders offer personal loans to people who have less-than-perfect credit, but not all of them can be trusted. The Federal Trade Commission lists red flags to watch out for, including if a lender demands an upfront fee and doesn’t clearly disclose and prominently display what fees apply, or if a lender pressures you to wire money. Be sure to do your research, and don’t be afraid to take your business elsewhere if you don’t feel comfortable.

How to Get a Loan With Bad Credit

If you’re in need of some extra funds, but your credit isn’t in tip-top shape, you may be wondering how to get a personal loan and if it’s even possible. The good news is you can get bad credit loans that provide you with the cash you need even if your credit is less than perfect. You simply need to do some research and choose where you apply wisely — and we’re here to help you understand how to do that.

While a personal loan can help you get your finances under control, it is important to note that it may not be the answer to all your financial problems, so getting one should be done carefully.

Here are some tips to help you learn how to get a loan with bad credit.

Gather Your Personal Information

As you think about how to get a personal loan, you can start collecting some information a lender may ask about. Here are two main items to help you get ready to apply for a loan.

Credit Scores

The first thing you want to do before you apply for any loan is to understand your credit, as this will give you insight into the details a lender reviews when they pull your credit. (To do this, you can see where your credit currently stands by viewing two of your credit scores for free, updated every 14 days, on Credit.com.) Checking your own credit reports and scores does not affect your credit scores in any way. You don’t need perfect credit to be approved for a personal loan, but your credit scores impact the terms and conditions you’ll qualify for. For example, bad credit loans will likely come with a higher interest rate and may be issued for a lower amount.

If you see your scores are looking pretty lackluster, you may decide you want to improve them a bit before applying for a loan. Some credit score improvement options you may consider include paying down debts, reviewing your credit reports for errors (and disputing any problems you find), and limiting the number of inquiries placed on your credit until your scores rebound (more on that in a moment).

Proof You Can Pay the Loan Back

It’s important to note that lenders will want to know you can repay the loan before they issue it, and the amount they are willing to lend often depends on your ability to do so. It’s a good idea to show how you’ll be repaying them, whether by offering proof of income or a cosigner.

Talk With Your Bank or Credit Union

Next, research minimum credit score requirements for personal loans from lenders in your area. A good place to start is with the bank or credit union you currently use, as they already have an understanding of your financial profile. Something worth noting is that credit unions may have more flexible lending standards and may be more willing to offer you a small personal loan. If you’ve been at the same bank for years, consider reaching out to the bank’s loan department and ask them how to get a loan. You may also want to inquire if your credit scores would qualify you for a personal loan.

Consider Which Loans Are Best for You

Remember when we mentioned limiting the number of inquiries on your credit while you work to improve it? Here’s why: Each loan application you submit triggers an inquiry into your credit, and hard inquiries can lower your credit scores a little bit. So, when you decide to start applying for a personal loan, you’ll want to do your research and likely not apply for every loan you come across.

It’s a good idea to only apply for loans from a lender you trust with lending standards you feel confident you can meet. You may be able to find the minimum credit scores a lender requires for a personal loan on the lender’s website or you can call and speak with one of their representatives.

Be Aware of Scams

There are plenty of online lenders promising loans with no credit check to people who have damaged or bad credit. While this may sound ideal, you want to be cautious. These websites may be nothing more than advance fee loan scams. According to the Federal Trade Commission, a lender who doesn’t seem interested in your credit history is a big red flag and could indicate a fraudulent website.

It’s a good idea to double-check an online lender’s background before applying for a loan. Contact your state Attorney General’s office or your state’s Department of Banking or Financial Regulation to find out if a lender is legitimate and registered to do business in your state. You can also take a look at the Better Business Bureau to see if any customer complaints have been filed against the lenders you’re considering.

 

Brooke Niemeyer contributed to this article.

How to Get the Best Personal Loan Rates

Fixed-rate personal loans can be a useful tool for consolidating debt, like high-interest credit cards or paying for an upcoming expense. To help you score the best low-interest personal loans, we tapped Jude Boudreaux, a certified financial planner with Upperline Financial, in New Orleans, who offered some tips. He also shared advice on finding the best banks for personal loans.

What Is a Personal Loan?

A personal loan is an installment loan: the borrower agrees to pay a predetermined monthly payment at a set interest rate for a certain period of time. There are two types for which you can apply: A secured personal loan uses collateral, such as property or a car, to back up the financing, whereas an unsecured personal loan is not backed by collateral.

The cost of these products vary widely, and while you may see annual percentage rates (APRs) as low as 4% advertised by lenders, average APRs can run much higher. One peer-to-peer marketplace, as an example, listed the average interest rate on its 36-month personal loan at 11.37% during the second quarter of 2016. The average interest rate on its 60-month product was 15.53% during that timeframe. It advertises rates ranging from 5.99% to 35.89% on its website.

Here are some ways to get the better rates.

Check Your Credit Score

Of course, “typically, the higher the [credit] score, the lower the rate,” said Boudreaux. He added, “Banks want to lend money, get returns and not take a lot of risk.”

Before you apply, “the best thing in general is to know your credit situation,” Boudreaux said. “If you walk in the bank without a sense, there’s a chance you’re going to get surprised.”

“Take a look at your credit before you ask for any kind of loan offer,” Boudreaux said.

Improve Your Credit Score

If you’ve checked your credit and don’t like what you see, now’s the time to improve it. Correct any errors before shopping around. An error such as an unpaid account that you don’t recognize could be lowering your credit score and hurting your chances of landing the low-rate personal loan that you want.

Likewise, do your best to pay off credit card debt and take care of collection accounts that may reflect poorly on you. “That’s the biggest thing I would say as a starting point,” Boudreaux said. If you’ve yet to build up your credit or have what’s known as a thin credit file, “banks can be over-reluctant” to lend you money, said Boudreaux. But don’t despair, just hold off on applying for the loan and use this time to build your credit the smart way.

Shop Smart

Every loan application that you send to a lender triggers an inquiry into your credit. And this inquiry lowers your credit score a little bit. And if you apply for several personal loans at the same time, your credit score could really take a hit. So be choosy about the financing that you apply for — and only apply for ones with credit standards that you are able to meet.

You can find out the minimum credit score needed to qualify for a personal loan by checking the lender’s website or by calling customer service and asking to speak with a specialist.

Tips for Finding the Best Banks

A bank where you already have checking and savings accounts is a good place to start your shopping, as well as online marketplaces, said Boudreaux. “You’re more likely to get a good deal from someone who knows you’re a good customer.”

Some banks will offer discounts on interest rates to customers with additional banking relationships, such as deposit accounts or a first mortgage. And you may be able to land an additional discount by automating your payments each month from a checking or savings account at the bank.

Credit unions are known for their affordable rates. And if you are a member of a credit union or anyone in your family is a member, it may be worth checking out their rates on personal loans as well.

Know Your Budget

While you want to get the best rates, it’s important to really consider what you can afford.

“You’ve got to have a real clear sense of what’s a reasonable monthly payment” when you go to apply for a loan, said Boudreaux, underscoring the importance of budgeting. “Getting overextended in order to get a better interest rate” isn’t unheard of, “but if that payment is really stretching your budget, that’s a problem. Make sure the monthly payment fits within it.” The last thing you want is to wind up in debt.

 

Lucy Larzony contributed reporting to this article.