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Students: payday loans are not your only option | Education | The …

The top testimonial for payday loan company Smart Pig is from someone without a surname, who declares in block capitals: “I love you Smart-Pig.com! You are my favourite pig ever! Who needs Peppa when you’re in my life!”

Noor” has clearly only met pigs willing to give her a 782% representative APR loan, a full 1% worse than the offer from Smart Pig.

Smart Pig is just one of a number of high interest payday lenders now offering their services to students. Their adverts, which have been reported to the Advertising Standards Agency (ASA), highlight prizes you can get your hands on, including the opportunity to “win a term’s rent”. All in a space they could have used to explain their APR.

Targeting Students

A worrying number of undergraduates are turning to payday loans. Around 2% of undergraduates used them last year, according to a survey by the National Union of Students (NUS). This may not sound like a lot, until you consider this means up to 46,000 students are risking the debt spiral associated with payday loans.

Despite a NUS campaign in 2013 to ban payday loan adverts on campuses, payday lenders are still heavily targeting students.

Peachy Loans have recently had complaints upheld against them by the ASA for an advert they ran on sandwich wrappers in cafes opposite university campuses and colleges. The campaign, it was found, encouraged a casual attitude to taking out a loan. Its slogan was: “Small bites put a smile on your lips! You can now get a loan from £50 to £500 and pay it back in small bits…” emanating from a cartoon mouth.

People willing to take financial advice from their sandwich wrappers may seem like a financially unsound group unlikely to return your investment but, unfortunately, these are probably the same group of well-meaning but naïve people that will incur late fees.

Scam techniques

There’s a reason payday loans companies use such trite campaigns, and it’s the same reason email scams are so poorly written. You and I may realise the emails are obviously a scam, but that’s because we’re supposed to.

Scammers deliberately use terrible spelling and implausible stories because it weeds out “false positives”, according to research from Microsoft. These are people who will likely figure out it’s a scam before they send off their money.

In the same way, adverts for payday loans weed out the people they’re not interested in, until all they’re left with are the incredibly desperate or the young and unreasonably optimistic.

There is money to be gained from the people optimistic enough to think APR won’t apply to them, as implied by Wonga’s now banned advert which claimed their 5,853% APR was “irrelevant”.

Payday loan companies aren’t looking to attract people who might look up what their interest rate actually means. They’re looking for more vulnerable people.

People who look at smiling pigs with top hats carrying bags of cash and don’t see a monumentally large danger sign. People who are paying attention to the singing Austrian girls handing people wads of money in TV adverts, and not the alarming text at the bottom of the screen.

Or they’re looking for people far too desperate to care. All too often students fit into this latter category.

Other options are available

Student Money Saver’s advice is to go to your university or student union for financial help. No matter how desperate things seem, advice and financial help will be available.

Hardship funds are available to you from your university when you are in dire financial circumstances. Hardship funds are lump sums or installments paid to you when you can’t afford the essentials, such as rent payment, utility bills or food.

Usually these are lump sums or installments paid to you, which you won’t have to pay back. In some cases your university will give you money as a loan, but without the massive rates of interest offered by payday lenders. Talk to your university and they will help you.

You can also request a higher bank overdraft if you haven’t done so already. Banks know students are likely to be high earners when they graduate, and so are likely to allow you this extension as an investment in your loyalty. If one bank won’t offer you an extended overdraft, shop around for a bank that will.

James Felton is the content editor of student finance website Student Money Saver.

[…]

This Startup Will Give You a Loan — But There's a Twist

When the opportunity to buy an established hair salon fell into Hayley Groll’s lap in June, she quickly took stock of her financing options.

The veteran hairstylist was not approved by the online lender she initially contacted. Then she found Austin-based Able, which bills itself as a “collaborative lender.”

Within three weeks, Groll had a three-year, $105,000 loan, enough to buy Shag Salon and renew its 1,850-square-foot commercial lease for a decade. Even better was her interest rate of 9 percent.

The brainchild of Harvard MBAs Will Davis and Evan Baehr, Able offers business owners one- to three-year loans of $25,000 to $250,000 at 8 to 16 percent interest—but with a twist: Borrowers must raise the first 25 percent of the sum from friends and family.

“What we’re really doing is trying to find the people who are being missed by traditional banks and even nontraditional online lenders,” Davis says.

Able conducted a beta test prior to its official launch in June, tweaking the terms and procedures with each loan. The online lender has so far made 50 loans ranging from $5,000 to $150,000, mostly in the Austin area, but has received nearly $40 million in loan requests from ’treps nationwide. The plan, Davis says, is for the 14-person startup to begin financing some of those by year’s end.

How it works

To qualify for a loan, businesses must be at least 6 months old. Davis wouldn’t stipulate revenue requirements but says Able’s borrowers to date make $1 million or less annually.

After a business owner fills out an online application, Able uses its proprietary technology to assess the company’s bank accounts, cash flow and credit history—pretty standard stuff. What’s new is that Able’s algorithm also looks at a company’s social media following and reviews via Yelp, Facebook, Twitter and LinkedIn. Davis wouldn’t reveal how a business’s online footprint is weighted or what metrics help or hinder an applicant, but he claims that Able receives a more complete picture of a company’s creditworthiness than any bank can acquire.

“This is really innovative,” says Charles Green, managing director of the Small Business Finance Institute, a resource site for commercial lenders. “You talk to a commercial banker about Facebook, and they don’t even know what it is, except that their daughter has an account.”

Finding backers

Once Able gives the green light, borrowers need to line up at least three backers (friends, relatives, mentors, colleagues or customers) to collectively kick in 25 percent of the approved loan. Backers must contribute at least $1,000 each, and family cannot contribute more than half of the 25 percent. Hairstylist Groll received $30,000 in all from five backers, including three long-standing clients. (Able’s software automatically confirms that backers and borrowers are indeed acquainted.)

Depending how fast the borrower lines up backers, funding can arrive within two weeks of applying, “much quicker than traditional bank financing,” Davis says.

What it costs

In addition to APR rates, Able charges a loan origination fee of 3 percent, but there are no early-repayment or other fees. Borrowers choose whether they wish to repay the loan in one, two or three years, and Able’s platform handles repaying the backers directly.

While Able dictates the APR of its 75 percent loan contribution, the individual backers providing the other 25 percent are free to choose their own interest rates. Able takes their terms and blends everyone’s interest rates into one composite rate.

“In some cases,” Davis says, “some of the backers come in with a lower APR rate that reduces the overall interest rate of the loan itself.”

LoansFinance […]

The 4 Worst Reasons For A Cash Advance

A cash advance is a loan from your credit card. It usually comes at a higher APR than regular purchases and is often limited to a percentage of your overall credit limit (terms vary by card and customer). Interest accrues from the date of the transaction (there is no grace period). Cash advances can be obtained in a bank branch, at ATMs or by using the paper convenience checks mailed and promoted by the card issuer.

Cash Advance in Theory

A cash advance could be a reasonable option for someone who has an emergency need for money and limited resources for getting it – especially when that person has a clear and reasonable plan for paying back the money in a short amount of time. It is, for example, a better option than a payday loan or title loan, due to the exorbitant triple-digit interest rates those loans typically carry and the greater payoff flexibility that comes with credit card debt.

Cash Advance in Reality

A cash advance is a very expensive way to get money, and the risk of falling into revolving debt cannot be ignored. The potential to pay many times the amount of the original advance (in interest charges) is very real. Furthermore, in addition to the higher interest rate, cash advances typically come with additional fees that everyday credit card purchases are not subject to.

Worst Reasons for a Cash Advance

The reasons a person might need a cash advance are as numerous and varied as the population of any city in America. Bona fide emergencies happen every day. But the reasons listed below should be a huge red flag that a cash advance would be a very bad idea:

1. You’re about to file for bankruptcy. New credit card debt does not magically disappear in a bankruptcy. Your creditors and a judge will examine your debts, including the dates and types. Once you know or have a strong inclination that you’ll soon file for bankruptcy, credit card use of any kind may be considered fraudulent. A cash advance immediately prior to filing is very likely to be challenged by the card issuer and that account may be excluded from the debts that are forgiven in a bankruptcy. For more, see When To Declare Bankruptcy.

2. To buy something you want but can’t afford. Credit cards should never be used to acquire things you want but can’t afford. It’s true that they can bridge the gap between a short term financial need and the ability to pay for it, but a person who confuses wants with needs is at risk of falling into revolving debt. At the very least, spending this way postpones your ability to establish a healthy emergency fund.

Going into debt for wants is also emotionally detrimental. A person who thrives on immediate gratification and the temporary emotional lift of a big purchase will eventually feel regret (and possibly depression, anxiety, stress and other debilitating emotions) when faced with the debt. The more compulsive the purchase, the more pronounced the regret. See 5 Ways To Control Emotional Spending.

3. To pay a credit card bill. Obtaining a cash advance to pay bills is a dangerous financial strategy that puts you very close to financial disaster. It is by nature only a very short term solution and it immediately exacerbates the financial troubles at hand.

4. To buy a gift for someone else. Never go into debt to buy a gift for another person. This is in the category of wants (versus needs). Generosity of spirit is an admirable trait, but not when it is at the expense of your own long-term financial health. We cannot give what we don’t have. No truly worthy recipient will be comfortable receiving the gift knowing it caused the giver to fall into costly debt.

The Bottom Line

Any consumer with a cash emergency should conduct a realistic and honest self-assessment to answer a few tough questions: Why do I need the money? Can I say no to this expense? Do I pay off my credit cards each month? How and when will I pay off this cash advance? What are the fees and interest rate, and what will my total cost be? What is my plan for building an emergency fund? See Budgeting Basics to help you get started on better financial planning.

Avoiding the need for a cash advance requires careful planning and conservative financial behavior over the long term. Financial solvency does not come easily to everyone, nor does it happen quickly. But smart money moves add up over time. For more information, read The Best And Worst Ways To Raise Cash Quickly.

[…]

What are the basic requirements to qualify for a payday loan?

A:

Payday loans, also known as cash advances, are short-term, low-balance, high-interest loans typically at usury rates that are so-named because of a tendency for the funds to be borrowed on a post-dated check that is cashed on the borrower’s upcoming payday. These loans are designed to be quick and easy and generally have very limited qualification loan requirements.

Per the Consumer Financial Protection Bureau, or CFPB, most payday lenders only demand that the following conditions be met for a person to qualify for a loan: borrower must have an active checking account; borrower must provide some proof of income; borrower must have valid identification; and borrower must be at least 18. The qualification and loan application process can be as fast as 15 minutes if you can quickly show you meet all of the requirements. In most circumstances, the borrower writes a check for the loan amount plus a lending fee, and the lender holds onto the check until a predetermined due date.

Qualifying loan amounts vary depending on the borrower’s income and the payday lender, although most states have laws establishing maximum payday loan amounts. Some states even limit the ability of borrowers to have multiple outstanding payday loans in an attempt to keep consumers from borrowing large amounts at extremely high interest rates.

Loan requirements should not be the only consideration if you are thinking about a payday loan. In terms of annual percentage rates, or APR, it is not uncommon for payday loans to exceed 500% or even 1,000%. Even though business models and regulations limit the size and duration of payday loans, these types of loans are still an expensive alternative and should be undertaken with care.

[…]

Payday loans 'service' aimed at children launches | Moneywise News

Image pocketmoneyloans.jpg

A payday loans service for children called Pocket Money Loans has launched, targeting kids aged 3+ with loans of up to £20.

The loans come with an APR of 5,000% and are available instantly online. Borrowers can choose to repay their loan in as little as a day or can take as long as 60 days.

The website for the firm carries branding aimed at children, including a yellow cartoon coin which the company hopes will attract young borrowers.

Find the best loan for you

A work of satire

But the loans firm is, of course a “work of satire” from artist Darren Cullen, aimed at drawing attention to “the way the consumer credit industry preys on the vulnerable and targets children with marketing.”

“Almost all payday loan companies have cartoon mascots, animated characters or sing-along jingles in their adverts,” Cullen explains. “Their high street shops often have play areas full of toys and some of them hand out balloons and sweets to kids at the counter.

“It’s a clear fact they target children, as both a means of persuading their parents, but also as a way to groom the next generation of indebted customers.”

Pocketmoneyloans.com appears, at first glance, to be a legitimate service because Cullen has used terminology that mirrors that of recognisable payday lenders.

On the home page, consumers are told: “Getting a pocket money advance from Pocket Money Loans is easy-peasy!” It also states: “Money problems? Get out of debt with a loan.”

Dig a little deeper, however, and the joke becomes more obvious: “We will look at how much your pocket money is before deciding on how much to offer you as a loan. Usually we will loan you just a little bit more than you can afford to repay.” The website also states: “APR stands for Annual Percentage Rate and it’s really confusing and boring.”

Cullen – who produces art, illustration and comics at spellingmistakescostlives.com – is opening a pop-up installation at the Atom Gallery in Finsbury Park to showcase his Pocket Money Loans idea to the public.

He adds: “Payday loan customers who repay on time are in the minority and they offer the smallest profit margin to the company. It’s the people who can’t afford to repay on time who rack up charges and compound interest over weeks or months. That’s where the real profits lie, built upon the backs of the poorest, most vulnerable members of society.”

Payday loans

Short-term cash loans designed to be borrowed mid-way through the month to tide the borrower over until they next get paid, whereupon the loan is settled. Generally used by people with bad credit ratings and/or no access to short-term credit such as an overdraft or credit card. Like logbook loans, this type of borrowing is hugely expensive: the average APR on payday loans is well over 1,000% and in some instances can be considerably more.

Compound interest

This is effectively paying interest on interest. Interest is calculated not only on the initial sum borrowed (principal) or saved (see APR and AER) but also on the accumulated interest. The more frequently interest is added to the principal, the faster the principal grows and the higher the compound interest will be. Compound interest differs from “simple interest” in that simple interest is calculated solely as a percentage of the principal sum.

APR

This is used to compare interest rates for borrowing. It is the total (or “gross”) interest you’ll pay over the life of a loan, including charges and fees. For credit cards where interest is charged at more frequent intervals, the APR includes a “compounding” effect (paying interest on interest). So for a credit card charging 2% interest a month (equating to 24% a year), the APR would actually be 26.82%.

[…]

Morgan Hill to regulate payday lending

Following the lead of surrounding cities, the Morgan Hill City Council voted to prohibit new payday lending establishments in the city limits.

The unanimous vote at the Oct. 1 council meeting directed city staff to draft an ordinance prohibiting new establishments that offer the short-term cash loan services. The ordinance will also prohibit the two existing payday lenders in Morgan Hill—Advance America and Check Into Cash—from expanding or relocating within the city limits.

Payday loans, also known as cash advances or deferred deposits, offer borrowers small cash loans of up to $300 for a period no longer than 30 days, according to a city staff report. The lenders charge fees that amount to an annual percentage rate of 460 percent for a two-week loan.

While financial and social advocates have called the payday lending industry a scourge which preys on low-income residents, proponents of the service say it’s better than forcing consumers to resort to costlier or even illegal sources of emergency funds.

At the Oct. 1 council meeting, which included a public hearing on the payday lending staff report, Advance America Government Affairs Director Sophia Garcia noted that payday loans are just one of a variety of finance options offering consumers a choice.

“Among other credit options, a payday loan may be the best choice when consumers consider the often higher costs of bouncing a check, paying overdraft fees or incurring late payment penalties,” Garcia said. If licensed storefront payday lending services are regulated in Morgan Hill, residents may turn to illegal, unregulated online lenders where they have no protection if a deal goes bad, she continued.

The action taken by the council Oct. 1 does not affect the two existing payday lenders in town unless they want to expand or move.

“We have two (payday lenders), we don’t need anymore,” Mayor Steve Tate said.

City officials have heard no specific complaints about these two businesses, but the council asked staff to look into local options for regulating payday lending as nearby cities have in recent months.

In January, the Gilroy City Council took such an action by amending its zoning ordinance to prohibit any business that offers payday lending. There are currently six payday loan establishments in Gilroy, and Mayor Don Gage said all of them are located on the east side of town where the city’s “most vulnerable populations” live.

“They were taking advantage of a vulnerable population by loaning them money at very high interest rates—often 10 times as high as if you borrowed from any other agency,” Gage said.

Gage added that borrowers who use the services often get caught in a cycle where they have to continue borrowing at exorbitant rates to pay off their previous loans.

Morgan Hill resident Brad Ledwith, who owns a local financial services firm, said the payday loan industry is equivalent to “loan sharking.” While he acknowledged the services can be useful as a rare source of emergency funds for desperate consumers, they should be considered a last resort for anyone in need of financial relief.

“They make so much interest off so little money,” Ledwith said. “It is the pond scum of the financial world.”

When asked for a comment, managers at the two businesses in town that offer payday loans—Cash to Credit and Advance America—referred the Times to media relations offices outside Morgan Hill.

Both businesses prominently display a schedule of fees and rates for different sized loans on their walls. The notice also includes a list of disclaimers and advisories, including that customers should not rely on payday loans as a long-term financial solution. The notices specify that any sized payday loan is subject to the equivalent of a 460 percent APR for 14 days, or 214 percent APR for 30 days.

The companies’ media relations offices did not return phone calls requesting comment.

The notices on the businesses’ walls are a requirement of the California Financial Code that regulates and sets licensing requirements for payday lending services, according to Morgan Hill Senior Planner John Baty.

The cities of San Jose and Sunnyvale have recently limited the total number of licensed payday lenders allowed in their cities, according to a city staff report. And Santa Clara County as well as the city of Los Altos have recently adopted zoning code changes that prohibit payday lending by definition, as Gilroy has.

[…]

Online Payday Loans Cost More, Result In More Complaints Than …

Image onlinepaydayapr.png


Online Payday Loans Cost More, Result In More Complaints Than Loans From Sketchy Storefronts

Image courtesy of DCvision2006

October 2, 2014 By

We understand why someone might opt for getting a payday loan online instead of doing it in person. It’s easier, faster, doesn’t require going to a shady-looking storefront operation where some trained fast-talking huckster might try to upsell you unnecessary add-ons or tack on illegal insurance policies. But the truth is that people who get their payday loans online often end up in a worse situation than they would have if they’d applied in person.

This is according to a new study [PDF] from the Pew Charitable Trusts on the topic of online payday loans.

For those unfamiliar with payday lending, it generally works like this: A borrower needs a relatively small amount of cash — usually a few hundred dollars — and takes out a loan with a repayment window of usually around 10-14 days. At the end of that term, the borrower is supposed to pay back the amount borrowed plus a lump-sum fee that often equates to an annual percentage rate over 100%.

WHAT’S 650% INTEREST BETWEEN FRIENDS?

According to the report, the typical storefront payday loan would charge a fee of around $55 for a $375 loan. That’s an APR of around 390%. While that’s astounding, it’s nothing compared to the $95 lump-sum fee that you’d pay for the same loan from an online; that’s an APR of more than 650%.

Payday loans can also be taken out as installment loans, in which the borrower pays back the principal and fees in smaller amounts over a slightly longer time period. Even then, online loans cost significantly more than storefront offerings, according to the study.

Your typical storefront installment loan will hit borrowers with an APR of around 300%, while online lenders charge upwards of 700%.

BREAKING DOWN BOUNDARIES

Of course, this will vary by lender and by state, as a number of states put limits on the maximum APRs of loans. More than a dozen states either outlaw payday lending outright or have such strict lending limits so as to make it not worth the effort for lenders.

But state laws don’t always stop online payday lenders from offering their pricey loans where they shouldn’t. This past summer, a web of online payday operations were indicted for making loans with triple-digit APRs to residents of New York, in violation of the state’s usury laws.

New York also sent cease and desist orders to dozens of online payday lenders operating from Native American reservations, saying that tribal affiliation does not give a lender the authority to break other state’s laws.

There are several apparent reasons that online payday loans cost more than storefront options. The primary driving force of the higher APRs is the higher rate of defaults and losses for online lenders. The Pew study found that the typical storefront operation needs to use about 17% of its revenue to cover losses, while 44% of what an online lender takes in goes to cover its losses.

Additionally, while storefront operations generally spend minimal money on advertising, online payday lenders spend a significant amount of cash on buying online search terms and lead generation.

SOAK, RINSE, REPEAT

With this risk, it means that online lenders have a more pressing need for borrowers who need to take out repeat loans to cover previous loans.

Even charging a 650% APR, an online lender may need a borrower to re-up his loan three times before seeing a profit.

Thus, some online lenders are pushing borrowers into loans where the only amount deducted each payday is the lender’s fee. That means the principal of the loan does not go down, and the loan is just re-upped for another couple of weeks.

One-in-three online borrowers that Pew researchers surveyed were put into a plan of this sort. And of that group, more than half had to actually call the lender to request that more than the fee be deducted.

Websites for these lenders make this sound like a borrower-friendly idea, with statements like “Online customers are automatically renewed every pay period. Just let us know when you are ready to pay in full, and we will deduct your loan plus fees from your bank account.”

If you borrow $375 with a per-term fee of $95, this lender will keep taking that $95 every two weeks until you can repay the $375 PLUS the latest $95 fee. So repaying the loan after six weeks means you would have paid $660 for a $375 loan.

DUDE, WHERE’S MY MONEY?

The Pew report also found that online lenders were twice as likely to make withdrawals that result in overdrafts for borrowers. Only about 1/4 of borrowers say this had happened to them with storefront payday lenders, while nearly 1/2 of online borrowers had experienced this problem.

“I got in a situation where people were taking money out of my account without me knowing,” says one borrower quoted in the report, “and they were taking money out, just kept taking extra money out. … I didn’t know nothing about it, but my bank stopped them. … They were like, ‘You’re having all this money coming out, and you don’t have this money in your account, so what’s going on here?’ … I had to switch banks.”

One-in-three online borrowers also reported unauthorized withdrawals from their bank accounts, while another 20% say they received a loan or payment that they did not apply for or authorize.

At the request of the Federal Trade Commission, a court recently shut down a network of payday lenders that was using info from payday lead generators to allegedly dole out unauthorized loans and then start helping themselves to fees from those same bank accounts.

30% of online payday borrowers say they had received at least one type of threat — whether it be the dangling sword of arrest, or claims that the borrower’s family or employer would be contacted about the debt:

SO FEW LENDERS, SO MANY COMPLAINTS

Looking at this info, it may not surprise you that while online payday lenders only account for about 30% of the market, they make up nearly 90% of the payday-related complaints filed with the Better Business Bureau.

And one single business — AMG Services — accounted for nearly 33% of all these complaints. You might remember AMG from its two-year-long legal battle with the FTC, or the fact that I dubbed it one of the scammiest payday lenders I’d ever come across.

October 2, 2014 By

Tell a friend:

[…]

How To Score A Private Student Loan

It’s no secret that college is phenomenally expensive, and the sticker price rises every year. In fact, college tuition has increased by nearly 1,200% over the past 35 years. For the 2013-2014 academic year, the College Board reports a “moderate” college budget averaged $22,826 for an in-state public college and $44,750 for a private college. The most expensive colleges cost more than $60,000 a year. Cha-ching!

Obviously, most families don’t have that kind of cash lying around, which is why the vast majority of students borrow money to help pay for college. For the most part, there are two types of student loans:

  1. Federal student loans funded by the U.S. government
  2. Private student loans from a non-federal lender, such as a bank, credit union or private lender

Federal student loans offer significant advantages, including fixed interest rates and income-based repayment plans – which means they are generally less expensive than private student loans. However, when it comes time to pay for college, many students who obtain federal student loans come up short.

When a federal student loan doesn’t cover the full cost of college and the student didn’t land a substantial scholarship, it’s time to search for a private loan.

Offered by banks and private lenders, private student loans generally come with variable interest rates between 3% and 12%, origination fees and other charges. These days, most private student loans mandate a cosigner, especially for younger students who haven’t established a credit history.

For these reasons, private student loans are often considered a last resort for families. Even so, with proper research, it is possible to find a competitive loan that meets the student’s needs.

Not sure where to begin with your private loan hunt? Here are a few tips:

A Lot Depends on Credit Scores

As you research student loans, pay close attention to interest rates. Unlike federal student-loan interest rates, which are the same for every borrower, the interest rates for private student loans vary. That’s because private loans are credit-based; students with better credit scores may receive a more favorable interest rate.

Students with a low credit score or no established credit history should apply with a credit-worthy co-signer, like Mom or Dad. Not only will this increase the chances of getting approved, but it could also significantly reduce the interest rate. Co-signers should be aware of the risk they are taking on, however. See Seniors: Before You Co-sign That Student Loan.

Check Out the APR

As you’re shopping around for the best deal, you may be tempted to choose the loan with the lowest interest rate. Don’t make this mistake. When it comes to private loans, it’s more effective to compare the Annual Percentage Rate (APR). Why? Because basic interest rates may not represent the true cost of the entire life of the loan. The APR factors in account deferment periods and repayment terms, which can have a huge impact on the overall cost of the loan.

To top it off, most lenders won’t give you an actual interest rate until after they have a chance to review your application. However, lenders typically provide APR examples up front, which can help you compare loans apples-to-apples. These APR examples also illustrate the lowest and highest interest rates available, which will give you an idea of what you can expect to pay. You’re likely to receive an interest rate that lands somewhere between those numbers.

Compare Payment Plans

It’s extremely important to find a lender that offers some flexibility when it comes to repaying your private loan. While some lenders require that you start making monthly payments while the student is still in school, others allow you to wait until after graduation. Pay close attention to these details and choose a lender that offers the ideal payment plan for you. For additional information on loan repayment, see Time To Consolidate Your Student Loans?

Study Up on Borrower Benefits

For bonus points, some student-loan lenders offer additional borrower benefits. These might include an automatic-payment interest-rate reduction (the interest rate drops for borrowers who sign up to have loan payments deducted automatically from their bank account), principal reduction or even cash rewards. For example, when you enroll in an automatic payment plan, most lenders will offer anywhere from a 0.25% to 0.50% interest rate reduction. This can translate into hundreds of dollars of savings over the life of the loan.

Be sure to read the fine print about these benefits. If borrowers can’t meet their end of the bargain (one month, they miss an auto-payment because their account balance is too low), they could lose the benefit permanently. Read more about the risks and rewards of these benefits here.

Reputation Rules

It’s important to choose a student loan lender that has a stellar reputation and offers first-class customer service. Professional and friendly customer service reps will be able to answer all of your complex questions and act as an ally when a borrower needs support and guidance in tough financial times. Not only can they walk students through their repayment options, but they can also help them avoid late payments.

To evaluate the customer service for each lender, ask the following questions:

Does it offer an online loan application?Does it provide toll-free 24/7 customer service with reasonable wait times?Does it have a website where borrowers can securely access loan information?Does it generate a lot of complaints from their borrowers?Is the lender recommended by schools and borrowers?Most colleges provide a preferred lender list, including contact information for reputable lenders with whom they’ve worked in the past. These recommended lenders usually offer the most competitive rates and superior customer service. Check out the school’s website or ask the college student aid office for a list. For more information, see Top Student Loan Providers and our tutorial on student loans. The website Simple Tuition will also enable you to compare loan options.

The Bottom Line

Families should try for federal student loans first. Private student loans are a last resort when federal loans and other funding (help from grandparents, perhaps) fall short. Research will allow you to compare private loan options and identify the best available deals.

[…]

Beware Of Payday Loans – Investopedia

Sometimes people get in a severe cash crunch and desperately need to raise money quickly. It could be an emergency car repair, a check that bounced, a bill that absolutely must be paid – in a month when they’re maxed out on their credit cards. That’s when it’s easy to stumble into the not-so-hidden world of payday loans.

What is a payday loan, exactly? Payday loans are loans that are given out for relatively small amounts of money (usually less than $1,000) for short periods of time. The idea behind a payday loan (also know as a “cash advance” or a “check loan”) is that it gives you some cash to tide you over until the next payday, with the idea that you will use your future paycheck to pay it off.

Payday loans usually require access to your checking account to deposit the loan and later to access the repayment funds. They are a way for people with poor credit (or no family or friends they want to tap) to gain quick access to cash in a pinch – it usually only takes a few hours to a few days to get the loan approved.

Despite the speed of getting funds in an emergency, payday loans are not a good financial decision for many reasons.

Consider the Cost

First, the annual percentage rate (APR) on payday loans can be as high as 2100% (yes, you read that number correctly). For reference, the highest APR allowed for credit cards is 29.99%. When borrowing money, you should always borrow from the source with the lowest APR possible; this will decrease the amount you pay in interest.

Figuring out the amount of interest you are paying isn’t always so clear. For one thing, an APR is calculated on a yearly basis. A typical payday loan lasts one to four weeks, and the cost is not given to you in annual terms. In fact, payday lenders may refer to the cost of borrowing money as a “fee” rather than as interest, which makes it seem like it is something you have no control over. Comparing apples to oranges masks how much you are paying for a payday loan compared to other sources of money, such as credit cards.

How They Work

Here’s how a payday loan works: You pay a “fee” for borrowing money at a set rate. This fee is usually between $15 and $30 for every $100 loaned. This sounds reasonable – just 15% to 30% – but because it is for a short period of time it is actually much higher than a credit card charge for the same amount. If payday comes around and you can’t afford to pay off the original loan plus the fee, you can “roll over” the loan … for another fee. This can snowball expenses for the consumer. The goal of a payday loan enterprise is to keep making money – lots of it.

According to the Consumer Finance Protection Bureau, 82% of loans are rolled over within 14 days, and half of all borrowers end up paying more in fees than they originally borrowed.

To make things worse, if the borrower provided a bank account number to the lender, the lender will make an automatic withdrawal of the amount owed, sometimes in multiple withdrawals with a fee for each withdrawal. If the money isn’t in the account, you pay the rollover fee and you also pay bank overdraft fees.

Legal Dangers

There are many loopholes in the payday loan business and few protections for consumers. Many states set limits for loan rollovers, but don’t limit opening a new loan on the same day that the old loan is paid off. Some states have a 24-hour waiting period for new loans, and some states have no restrictions whatsoever.

Members of the U.S. military have some protection under the Military Lending Act. Active duty military members, their spouses and some dependents have an APR cap of 36%, and they are protected from paying more fees due to rollover charges.

While there are still many brick-and-mortar payday loan centers, many payday loan operations have moved online. This has opened up many opportunities for scams that can be difficult to recover from. If you think you are the victim of a payday loan scam, contact the Consumer Finance Protection Bureau to file a complaint.

Alternatives to Payday Loans

While the prospect of quick cash for a fee may be appealing, it is almost never worth the risk of being caught in the payday loan trap. Although some websites advertise payday loans as a way to build your credit, it is an expensive and risky route to take. Before taking out a payday loan, ask yourself: “If I can’t afford my expenses with my current paycheck, is there any reason I will be able to pay back a loan plus fees – and cover my normal expenses – when I get my next paycheck?”

If the answer is no, consider some alternatives to a payday loan:

As already mentioned, credit card interest rates are lower than you’d pay for a payday loan. If you have access to credit or credit card cash advances, choose those resources over payday loans. See if you can open a new credit card or increase your limits on current cards.See if you can get a small loan from a bank or credit union. Small and short-term loans have become more common as banks and credit unions provide alternatives to payday loans for their customers.For fast cash, try selling some of your belongings or pick up a side job (even a night of babysitting may tide you over). See Make Money Fast From The New ‘Sharing Economy’ for some other ideas.If you routinely find yourself unable to make your funds last until the next paycheck, make a budget and decrease your expenditures.To avoid getting in a pinch in emergencies, build an emergency fund so you won’t have to take out loans for unexpected expenses.If you already have a payday loan, get overdraft protection on your bank account.The Bottom Line

Payday loan borrowing can be an expensive cycle that is difficult to break. The industry is designed to take advantage of people with limited resources, and the consequences of taking out a payday loan can be many times more costly than the initial expense. If you are in debt and struggling to make ends meet, consider getting financial counseling to find a way out of your tight circumstances.

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Beware Of Payday Loans

Sometimes people get in a severe cash crunch and desperately need to raise money quickly. It could be an emergency car repair, a check that bounced, a bill that absolutely must be paid – in a month when they’re maxed out on their credit cards. That’s when it’s easy to stumble into the not-so-hidden world of payday loans.

What is a payday loan, exactly? Payday loans are loans that are given out for relatively small amounts of money (usually less than $1,000) for short periods of time. The idea behind a payday loan (also know as a “cash advance” or a “check loan”) is that it gives you some cash to tide you over until the next payday, with the idea that you will use your future paycheck to pay it off.

Payday loans usually require access to your checking account to deposit the loan and later to access the repayment funds. They are a way for people with poor credit (or no family or friends they want to tap) to gain quick access to cash in a pinch – it usually only takes a few hours to a few days to get the loan approved.

Despite the speed of getting funds in an emergency, payday loans are not a good financial decision for many reasons.

Consider the Cost

First, the annual percentage rate (APR) on payday loans can be as high as 2100% (yes, you read that number correctly). For reference, the highest APR allowed for credit cards is 29.99%. When borrowing money, you should always borrow from the source with the lowest APR possible; this will decrease the amount you pay in interest.

Figuring out the amount of interest you are paying isn’t always so clear. For one thing, an APR is calculated on a yearly basis. A typical payday loan lasts one to four weeks, and the cost is not given to you in annual terms. In fact, payday lenders may refer to the cost of borrowing money as a “fee” rather than as interest, which makes it seem like it is something you have no control over. Comparing apples to oranges masks how much you are paying for a payday loan compared to other sources of money, such as credit cards.

How They Work

Here’s how a payday loan works: You pay a “fee” for borrowing money at a set rate. This fee is usually between $15 and $30 for every $100 loaned. This sounds reasonable – just 15% to 30% – but because it is for a short period of time it is actually much higher than a credit card charge for the same amount. If payday comes around and you can’t afford to pay off the original loan plus the fee, you can “roll over” the loan … for another fee. This can snowball expenses for the consumer. The goal of a payday loan enterprise is to keep making money – lots of it.

According to the Consumer Finance Protection Bureau, 82% of loans are rolled over within 14 days, and half of all borrowers end up paying more in fees than they originally borrowed.

To make things worse, if the borrower provided a bank account number to the lender, the lender will make an automatic withdrawal of the amount owed, sometimes in multiple withdrawals with a fee for each withdrawal. If the money isn’t in the account, you pay the rollover fee and you also pay bank overdraft fees.

Legal Dangers

There are many loopholes in the payday loan business and few protections for consumers. Many states set limits for loan rollovers, but don’t limit opening a new loan on the same day that the old loan is paid off. Some states have a 24-hour waiting period for new loans, and some states have no restrictions whatsoever.

Members of the U.S. military have some protection under the Military Lending Act. Active duty military members, their spouses and some dependents have an APR cap of 36%, and they are protected from paying more fees due to rollover charges.

While there are still many brick-and-mortar payday loan centers, many payday loan operations have moved online. This has opened up many opportunities for scams that can be difficult to recover from. If you think you are the victim of a payday loan scam, contact the Consumer Finance Protection Bureau to file a complaint.

Alternatives to Payday Loans

While the prospect of quick cash for a fee may be appealing, it is almost never worth the risk of being caught in the payday loan trap. Although some websites advertise payday loans as a way to build your credit, it is an expensive and risky route to take. Before taking out a payday loan, ask yourself: “If I can’t afford my expenses with my current paycheck, is there any reason I will be able to pay back a loan plus fees – and cover my normal expenses – when I get my next paycheck?”

If the answer is no, consider some alternatives to a payday loan:

As already mentioned, credit card interest rates are lower than you’d pay for a payday loan. If you have access to credit or credit card cash advances, choose those resources over payday loans. See if you can open a new credit card or increase your limits on current cards.See if you can get a small loan from a bank or credit union. Small and short-term loans have become more common as banks and credit unions provide alternatives to payday loans for their customers.For fast cash, try selling some of your belongings or pick up a side job (even a night of babysitting may tide you over). See Make Money Fast From The New ‘Sharing Economy’ for some other ideas.If you routinely find yourself unable to make your funds last until the next paycheck, make a budget and decrease your expenditures.To avoid getting in a pinch in emergencies, build an emergency fund so you won’t have to take out loans for unexpected expenses.If you already have a payday loan, get overdraft protection on your bank account.The Bottom Line

Payday loan borrowing can be an expensive cycle that is difficult to break. The industry is designed to take advantage of people with limited resources, and the consequences of taking out a payday loan can be many times more costly than the initial expense. If you are in debt and struggling to make ends meet, consider getting financial counseling to find a way out of your tight circumstances.

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