What is a Payday Loan?
A Payday loan is a short-term cash loan. Borrowers write a personal check for the amount they want to borrow. But in addition to that amount, the check includes the finance charge and THEN they can receive their payday loan. When the borrowers next paycheck comes out, then the loan and finance charge must be paid in one lump sum. The average payday loan term range is about 2 weeks and ranges from $100-$1,000 depending on the state. Between the interest and the finance charges, borrowers end up paying between around 400-800% annual interest rate. Payday loans are appealing because there is little qualification for a payday loan other than having an open bank account, an income of some kind and identification.
The Payday Loan Trap
According to the Consumer Federation of America “Consumers who use payday loans have an average of eight to thirteen loans per year at a single lender. In one state almost sixty percent of all loans made were used to cover the prior payday loan transaction; either through renewals or new loans taken out immediately after paying off the prior loan.”
New guidelines from the Consumer Financial Protection Bureau could go into effect as early has next year. Payday lenders will be held to new standards including confirming their customer’s income and that they can pay back the loan while covering their basic living expenses. New regulations will also reduce the number of times a payday customer can roll over their loans into newer and more expensive loans with higher interest rates. New regulations could cripple the payday industry.
Is There a Way Out Of the Payday Loan Cycle?
Yes. A payday loan can be negotiated through a debt settlement. Payday loan debt settlement is the process of paying off debt to a creditor after mutually agreeing to a sum less than what is originally owed. The debt settlement negotiation allows the debtor and creditor to agree on a reduced balance amount. The payday lender would rather receive some of the money that you owe them than have you declare bankruptcy and receive nothing. You can attempt to settle payday loan debt yourself or you can hire an attorney. Call San Diego debt relief attorney for a free consultation at 858-217-5051. Be aware of debt settlement companies, as they are not held to the same legal standards and ethical obligations as an attorney. An experienced debt relief attorney will negotiate with your lender to settle debt with payday loans and significantly lower the amount you pay back on the total payday loan debt that you owe.
Why Would a Payday Lender Agree to a Debt Settlement?
When a lender gets a consumer stuck in the payday loan cycle, the borrower is just chipping away at the debt. But, once you stop paying the minimum owed, the lender loses their income and debt settlement allows them a way out, since the lender can now claim your account as a loss. The payday lender will then use the losses to offset other profits and reap the benefit of creative bookkeeping.
Lenders are in the business of making money. For the payday lender, a debt settlement means they get at least some of the funds that you owe without the company having to take you to court. Litigation is expensive and time consuming, so settlement is often an attractive option. If they know they’re sure to get at least some of the amount from you, many companies are willing to discuss options.