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Subprime boom ties loans to car titles

The title lenders are seizing upon a broad retrenchment among banks, which have become wary of making loans to borrowers on the fringe of the financial system. Regulations passed after the financial crisis have made it much more expensive for banks to make loans to all but the safest borrowers.

Read MoreRegulators press banks for more on auto loan exposure

The title lenders are also benefiting as state authorities restrict payday loans, effectively pushing payday lenders out of many states. While title loans share many of the same features — in some cases carrying rates that eclipse those on payday loans — they have so far escaped a similar crackdown.

In 21 states, car title lending is expressly permitted, with title lenders charging interest of up to 300 percent a year. In most other states, lenders can make loans with cars as collateral, but at lower interest rates.

Seeing the regulatory landscape shift, some of the country’s largest payday lenders are switching gears. When Arizona effectively outlawed payday loans, ACE Cash Express registered its payday loan storefronts in the state as car title lenders, state records show.

Lenders made similar changes in Virginia, where lawmakers outlawed payday lending in 2010. But title lenders were untouched by that law and have expanded throughout the state, drawing business from Maryland.

The number of stores offering title loans in Virginia increased by 24 percent from 2012 to 2013, according to state records. Last year, the lenders made 177,775 loans, up roughly 612 percent from 2010, when the state banned payday lending.

In Tennessee, the number of title lending stores increased by about 22 percent from 2011 to 2013, reaching 1,017.

That is a small fraction of the industry’s overall size, state regulators say, because only a handful of states keep statistics. Legal aid offices in Arizona, California, Georgia, Missouri, Texas and Virginia report that they have experienced an influx of clients who have run into trouble with the loans.

“The demand is there for people who are desperate for money,” said Jay Speer, the executive director of the Virginia Poverty Law Center.

Loopholes and Adversity

When Tiffany Capone suggested that her fiancé, Michael, take out a $10,000 TitleMax loan with a 119 percent interest rate, she figured it would be a temporary fix to pay the bills. But this summer, after Michael fell behind on the loan payments, the couple’s three-year-old Hyundai was repossessed.

“It had my child’s car seat in the back,” said Ms. Capone, of Olney, Md.

With their car gone, the couple had to sell most of their furniture and other belongings to a pawnshop so they could afford to pay for taxis to ferry Michael, a diabetic with a heart condition, to his frequent doctors’ appointments. The hardships caused by title loans are being cited as one of the big challenges facing poor and minority communities.

“It is a form of indenture,” said Robert Swearingen, a lawyer with Legal Services of Eastern Missouri, adding that “because of the threat of repossession, they can string you along for the rest of your life.”

Johanna Pimentel said she and both of her brothers had taken out multiple title loans.

“They are everywhere, like liquor stores,” she said.

Ms. Pimentel, 32, had moved her family out of Ferguson, Mo., to a higher-priced suburb of St. Louis that promised better schools. But after a divorce, her former husband moved out, and she had trouble paying her rent.

Ms. Pimentel took out a $3,461 title loan using her 2002 Suburban as collateral.

After falling behind, she woke up one morning last March to find that the car had been repossessed. Without it, she could not continue to run her day care business.

Pointing to such experiences, lawmakers in some states — regulating the industry largely falls to states — have called for stricter limits on title loans or outright bans.

In Virginia, lawmakers passed a bill in 2010 that institutes some restrictions on the practice, including preventing lenders from trying to collect money from customers once a car has been repossessed. That same year, Montana voters overwhelmingly backed a ballot initiative that capped rates on title loans at 36 percent.

But for every state where there has been a crackdown, there are more where the industry has mobilized to beat back regulations.

In Wisconsin, it took the title loan industry only one year to reverse a ban on the loans that had been put in place in 2010. In New Hampshire in 2008, state legislators enacted a law that put a 36 percent ceiling on the rates that title lenders could charge. Four years later, though, lobbyists for the industry won a repeal of the law.

“This is nothing but government-authorized loan sharking,” said Scott A. Surovell, a Virginia lawmaker who has proposed bills that would further rein in title lenders.

Even when there are restrictions, some lenders find creative ways to continue business as usual. In California, where the interest rates and fees that lenders can charge on loans for $2,500 or less are restricted, some lenders extend loans for just over that amount.

Sometimes the workarounds are more blatant.

The City of Austin allows title lenders to extend loans only for three months. But that did not stop Mr. Chicosky, the veteran who borrowed $4,000 for car repairs, from getting a loan for 24 months.

Last year, after applying for a loan at a Cash America store in Austin, Mr. Chicosky said, a store employee told him that he would have to fill out the paperwork and pick up his check in a nearby town. Mr. Chicosky’s lawyer, Amy Clark Kleinpeter, said the location switch appeared to be a way to get around the rules in Austin.

The lender offered a different explanation to Mr. Chicosky. “They told me that they didn’t have a printer at the Austin location that was big enough to print my check,” he said.


Can You Use Your Car to Get a Loan?

Dozens of options exist for consumers looking to borrow money, but some loans are much harder to access than others. The best and least expensive ways of borrowing money generally require the borrower to have a good credit history, and many people aren’t in that situation.

That’s where things like payday loans and auto title loans come in, some people say — that’s a controversial viewpoint, which I’ll explain later.

First, it’s important to go over the details of what auto title loans are.

What Is an Auto Title Loan?

In 21 states, if you own a car, you can probably get an auto title loan. (There are some auto title lenders who allow consumers to borrow against a vehicle if they have a certain percentage of equity, but those are uncommon.) You take your vehicle to an auto title lender — generally a storefront business — where the lender determines the value of the vehicle and offers you a loan for a certain percentage of that car’s value.

You give the lender the title as collateral for the loan, giving the lender the ability to repossess your car if you do not repay the loan. The average loan is $951 and is due in full, plus fees and interest, in 30 days, according to a report from the Center for Responsible Lending. Fees generally run $25 per $100 borrowed, so that’s $237.75 for the average $951 loan (plus interest).

Interest rates average 25% per month, or 300% APR. Eighteen of the 21 states with auto title lenders allow triple-digit APRs (Arizona, New Hampshire and Georgia do not). Those 21 states are Alabama, Arizona, California, Delaware, Georgia, Kansas, Louisiana, Idaho, Illinois, Mississippi, Missouri, Nevada, New Hampshire, New Mexico, South Carolina, South Dakota, Tennessee, Texas, Utah, Virginia and Wisconsin.

Borrowers may refinance (for a fee) their loans at the end of their 30-day loan period if they cannot afford the balance.

That’s the gist of it. Theoretically, it’s a simple process: Bring your car to the store with your driver’s license, vehicle title, spare key and possibly a recent paycheck stub. The lender determines the car’s wholesale value, lends you a portion of that value in cash, and you make an appointment to return in 30 days to repay the loan.

In reality, the process gets much more complicated from there.

Why Auto Title Loans Are Controversial

Some people think auto title loans are a useful tool, while others condemn the practice as predatory lending.

Tony Petkovich, head of global trading at PCM Capital Management, invests in auto title lenders and thinks the products serve a purpose for people who can’t get other types of loans and don’t have credit cards. He sees it as a valuable option for business owners or consumers who find themselves in a pinch and have no other ways of getting cash they need as soon as possible.

“The bottom line is this if you’re short on money, … and somebody tells you, ‘Look we’re going to let you make the deal happen, but we’re going to charge you a 35% interest rate,’ the bottom line you’re going to look at the benefit to you — you’re not going to care how much it costs,” Petkovich said. He’s referring to a 35% monthly interest rate, by the way.

That’s the thing: If you’re taking out an auto title loan in an emergency, you will pay for it. Even if you make the balloon payment at the end of 30 days, you’re looking at paying hundreds of dollars in fees and interest, in addition to the principal balance.

This is where things get pretty ugly in auto title lending: Most people don’t repay the loan within 30 days, and the cost of that initial loan skyrockets. The average car title loan borrower renews the loan eight times, so for the $951 average loan, that’s an extra $1,904 in total renewal fees and $2,142 in interest. This average person pays $3,093 to borrow $951, according to the Center for Responsible Lending’s 2013 report on the industry. The report is based on state-level data and bankruptcy court proceedings involving auto title loans.

“The normal customer who gets a car title loan ends up trapped in that loan,” said Chris Kukla, senior vice president of the Center for Responsible Lending. He said the typical outcome from these loans negates arguments for their existence.

“That’s always the comment they make is, ‘Where else are they going to go?'” Kukla said, referencing business owners and industry advocates. “It doesn’t justify a problem that traps people in debt. Is the credit they’re getting doing them any favors? Is it really helping them, or is it just creating another financial emergency? And what’s clear is car title loans create a financial emergency.”

If these sound a lot like the problems people highlight with payday lending, that’s because they are. Using the car as collateral sets these products apart (payday loans are also available in all 50 states). If you’re taking out an auto title loan, chances are your credit is already in bad shape, and defaulting on one of these loans will trash it further. (You can get your credit scores for free every month on to see where you stand.) On top of that, you will lose your car and the lender will sell it. Should the proceeds of that sale not cover the amount you owe in principal, interest and fees, the lender could send a debt collector after you — that’s another hit to your battered credit. Add that to the fact that you’ve lost your car and quite possibly your only way of getting to work, the worst-case scenario of taking out an auto title loan is pretty horrifying.

Auto Title Loan Alternatives

There are many more reasons why you should not get an auto title loan than why you should. Still, that doesn’t necessarily help someone who desperately needs money and sees an auto title loan as the only viable option.

“Don’t. Just don’t,” Kukla said he would say to anyone considering an auto title loan. “There are going to be other options available, and some of them may not be as easy to do, but these lenders are going to try and promise that this is going to be a short-term loan, but everything we know is people walk in the door and end up trapped in worse situations. … Try every other option you have. Even if it (an auto title loan) is an option, it’s an option that’s going to destroy you. It’s not going to be a help.”

If you own your car, Kukla said you can try your local credit union for a product that is similar to an auto title loan in name only: Based on the value of your car, the credit union may lend you a percentage of that car’s value, but it’s more like taking out a new auto loan on your car, with installment payments and a lower interest rate.

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Announcing a New, Flexible Repayment Term, Low Rate Merchant Cash Advance Option Specifically Designed for Retail …


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Big banks are not lending working capital to small businesses, according to several recent news reports. The reason given is the wave of new federal lending and banking regulations stymieing the commercial loan market. Traditional lending institutions are in a precarious situation. Banks saddled with huge loan default losses, the result of the Great Recession. During the years 2008 through 2010 and even today, the trend of mortgage, auto loan, credit card, and small business loans defaults put banks hundreds of millions of dollars in the red.

Pressured by congressional members to make risky loans to prop-up the economy from 2004 through 2007, banks complied, only to take the devastating financial hit. The introduction of new legislation sought to curtail future risk, but only after the damage was inflicted.

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Payday Loans Trend In The United States Of America | Payday …

Image twitt.gif

Growing trend of short-term loans in the country

Are you wondering about the payday loans trend in the U.S? The declined in the number of payday lenders storefronts have stop the growing trend of short-term loans in the country. The stringent regulation of the payday lending industry have forced many lenders to closed shop and moved their business online. So, when you need to borrow money immediately, borrowing online is now the trend.

Payday loans are very expensive to obtain because of the high interest rate charge by lenders online and offline. Many financial advisor and even payday lenders advised responsible borrowing because of the high rate associated with these types of loans in order to avoid the common payday loans pitfalls that affected a lot of people since these loans become popular.

By the way, payday loans are costly given that the average interest is about 15% of the principal amount borrowed, with repayment terms of 2 weeks. This translates to 390% APR or annual percentage rate. Additionally, payday loans in the United States America is allowed in 37 states, while 13 states prohibit or consider cash advance illegal way to get instant cash.

Take note, some states do not banned payday loans but only regulate them in the form of the usury laws or limits. The states that consider payday loans illegal are:

Arkansas Connecticut Kentucky Georgia Maryland Maine Massachusetts (highly regulated) New Jersey New Hampshire New York North Carolina Pennsylvania Vermont West Virginia

These states prohibit payday loans but it does not mean that residents from these parts of America cannot borrow money from payday lenders because they can from online lenders. Hence, when running out of cash or have unexpected expenses, just borrow online to save time and enjoy the benefit of payday loans.



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Introducing the Best Business Loan Available to Small Companies, Thanks to Alternative Lender Business Cash Advance …



Introducing the Best Business Loan Available to Small Companies, Thanks to Alternative Lender Business Cash Advance Guru

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The best business loan available today to small companies comes courtesy of Business Cash Advance Guru, a leading alternative lender which specializes in capital funding options such as emergency business loan products, working capital infusions, and commercial level financing for companies across many industries.

Small business lending has been on a steep decline since the national economic downturn began taking hold in 2008, “The number of U.S. , defined as $1 million or less, declined 5 percent last year, according to a study by the Small Business Administration released in July. The dollar amount of small business loans declined 7 percent. Moreover, the economic downturn has crushed the dreams of many entrepreneurs. More than 170,000 small businesses in the U.S. shut down between 2008 and 2010, according to a recent analysis of U.S. Census Bureau data.”

The latest round of analysis into small business lending shows that as new federal regulations being imposed on traditional lenders such as banks and credit unions have caused those institutions to revise their lending criteria. New standards are increasingly shutting out the majority of small businesses. Companies must have a near perfect credit history, pledge substantial assets, and owners are required to sign a personal guarantee.

Alternative lenders, like Business Cash Advance Guru, make obtaining a quick business loan online easy. This lender charges no hidden fees, does not run a business credit check, and can qualify online applicants for $5,000 in as little as 24 hours.

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Small businesses going through lenders such as Business Cash Advance Guru are getting capital funding in as little as a week, via direct deposit. Funds can be used for any purpose, and these loans are very affordable, starting at just 1.9 percent. Payment installments are based on a percentage, automatically lowering during slow months to make these loans affordable.

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Leading Business Loan Provider Reveals New Tips on How Companies Can Get a Poor Credit Business Loan Fast with …


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The alternative lender, which specializes in restaurant advance loans, as well as bad credit business loan options, is leading the way in a new way of providing capital resources to small and medium sized companies across many different industries.

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Whack-a-Mole: How Payday Lenders Bounce Back When States …

In state after state that has tried to ban payday and similar loans, the industry has found ways to continue to peddle them. (Thomas Hawk via Flickr)

A version of this story was co-published with the St. Louis Post-Dispatch.

In 2008, payday lenders suffered a major defeat when the Ohio legislature banned high-cost loans. That same year, they lost again when they dumped more than $20 million into an effort to roll back the law: The public voted against it by nearly two-to-one.

But five years later, hundreds of payday loan stores still operate in Ohio, charging annual rates that can approach 700 percent.

It’s just one example of the industry’s resilience. In state after state where lenders have confronted unwanted regulation, they have found ways to continue to deliver high-cost loans.

Sometimes, as in Ohio, lenders have exploited loopholes in the law. But more often, they have reacted to laws targeted at one type of high-cost loan by churning out other products that feature triple-digit annual rates.

To be sure, there are states that have successfully banned high-cost lenders. Today Arkansas is an island, surrounded by six other states where ads scream “Cash!” and high-cost lenders dot the strip malls. Arkansas’ constitution caps non-bank rates at 17 percent.

But even there, the industry managed to operate for nearly a decade until the state Supreme Court finally declared those loans usurious in 2008.

The state-by-state skirmishes are crucial, because high-cost lenders operate primarily under state law. On the federal level, the recently formed Consumer Financial Protection Bureau can address “unfair, deceptive or abusive practices,” said a spokeswoman. But the agency is prohibited from capping interest rates.

In Ohio, the lenders continue to offer payday loans via loopholes in laws written to regulate far different companies — mortgage lenders and credit repair organizations. The latter peddle their services to people struggling with debt, but they can charge unrestricted fees for helping consumers obtain new loans into which borrowers can consolidate their debt.

Today, Ohio lenders often charge even higher annual rates (for example, nearly 700 percent for a two-week loan) than they did before the reforms, according to a report by the nonprofit Policy Matters Ohio. In addition, other breeds of high-cost lending, such as auto-title loans, have recently moved into the state for the first time.

Earlier this year, the Ohio Supreme Court agreed to hear a case challenging the use of the mortgage law by a payday lender named Cashland. But even if the court rules the tactic illegal, the companies might simply find a new loophole. In its recent annual report, Cash America, the parent company of Cashland, addressed the consequences of losing the case: “if the Company is unable to continue making short-term loans under this law, it will have to alter its short-term loan product in Ohio.”

Amy Cantu, a spokeswoman for the Community Financial Services Association, the trade group representing the major payday lenders, said members are “regulated and licensed in every state where they conduct business and have worked with state regulators for more than two decades.”

“Second generation” products

When unrestrained by regulation, the typical two-week payday loan can be immensely profitable for lenders. The key to that profitability is for borrowers to take out loans over and over. When the CFPB studied a sample of payday loans earlier this year, it found that three-quarters of loan fees came from borrowers who had more than 10 payday loans in a 12-month period.

But because that type of loan has come under intense scrutiny, many lenders have developed what payday lender EZCorp chief executive Paul Rothamel calls “second generation” products. In early 2011, the traditional two-week payday loan accounted for about 90 percent of the company’s loan balance, he said in a recent call with analysts. By 2013, it had dropped below 50 percent. Eventually, he said, it would likely drop to 25 percent.

But like payday loans, which have annual rates typically ranging from 300 to 700 percent, the new products come at an extremely high cost. Cash America, for example, offers a “line of credit” in at least four states that works like a credit card — but with a 299 percent annual percentage rate. A number of payday lenders have embraced auto-title loans, which are secured by the borrower’s car and typically carry annual rates around 300 percent.

The most popular alternative to payday loans, however, are “longer term, but still very high-cost, installment loans,” said Tom Feltner, director of financial services at the Consumer Federation of America.

Last year, Delaware passed a major payday lending reform bill. For consumer advocates, it was the culmination of over a decade of effort and a badly needed measure to protect vulnerable borrowers. The bill limited the number of payday loans borrowers can take out each year to five.

“It was probably the best we could get here,” said Rashmi Rangan, executive director of the nonprofit Delaware Community Reinvestment Action Council.

But Cash America declared in its annual statement this year that the bill “only affects the Company’s short-term loan product in Delaware (and does not affect its installment loan product in that state).” The company currently offers a seven-month installment loan there at an annual rate of 398 percent.

Lenders can adapt their products with surprising alacrity. In Texas, where regulation is lax, lenders make more than eight times as many payday loans as installment loans, according to the most recent state data. Contrast that with Illinois, where the legislature passed a bill in 2005 that imposed a number of restraints on payday loans. By 2012, triple-digit-rate installment loans in the state outnumbered payday loans almost three to one.

In New Mexico, a 2007 law triggered the same rapid shift. QC Holdings’ payday loan stores dot that state, but just a year after the law, the president of the company told analysts that installment loans had “taken the place of payday loans” in that state.

New Mexico’s attorney general cracked down, filing suits against two lenders, charging in court documents that their long-term products were “unconscionable.” One loan from Cash Loans Now in early 2008 carried an annual percentage rate of 1,147 percent; after borrowing $50, the customer owed nearly $600 in total payments to be paid over the course of a year. FastBucks charged a 650 percent annual rate over two years for a $500 loan.

The products reflect a basic fact: Many low-income borrowers are desperate enough to accept any terms. In a recent Pew Charitable Trusts survey, 37 percent of payday loan borrowers responded that they’d pay any price for a loan.

The loans were unconscionable for a reason beyond the extremely high rates, the suits alleged. Employees did everything they could to keep borrowers on the hook. As one FastBucks employee testified, “We just basically don’t let anybody pay off.”

“Inherent in the model is repeated lending to folks who do not have the financial means to repay the loan,” said Karen Meyers, director of the New Mexico attorney general’s consumer protection division. “Borrowers often end up paying off one loan by taking out another loan. The goal is keeping people in debt indefinitely.”

In both cases, the judges agreed that the lenders had illegally preyed on unsophisticated borrowers. Cash Loans Now’s parent company has appealed the decision. FastBucks filed for bankruptcy protection after the judge ruled that it owed restitution to its customers for illegally circumventing the state’s payday loan law. The attorney general’s office estimates that the company owes over $20 million. Both companies declined to comment.

Despite the attorney general’s victories, similar types of loans are still widely available in New Mexico. The Cash Store, which has over 280 locations in seven states, offers an installment loan there with annual rates ranging from 520 percent to 780 percent. A 2012 QC loan in New Mexico reviewed by ProPublica carried a 425 percent annual rate.

“Playing Cat and Mouse”

When states — such as Washington, New York and New Hampshire — have laws prohibiting high-cost installment loans, the industry has tried to change them.

A bill introduced in Washington’s state senate early this year proposed allowing “small consumer installment loans” that could carry an annual rate of more than 200 percent. Though touted as a lower-cost alternative to payday loans, the bill’s primary backer was Moneytree, a Seattle-based payday lender. The bill passed the state senate, but stalled in the house.

In New Hampshire, which banned high-cost payday loans in 2008, the governor vetoed a bill last year that would have allowed installment loans with annual rates above 400 percent. But that wasn’t the only bill that high-cost lenders had pushed: One to allow auto-title loans, also vetoed by the governor, passed with a supermajority in the legislature. As a result, in 2012, New Hampshire joined states like Georgia and Arizona that have banned triple-digit-rate payday loans but allow similarly structured triple-digit-rate auto-title loans.

Texas has a law strictly limiting payday loans. But since it limits lenders to a fraction of what they prefer to charge, for more than a decade they have ignored it. To shirk the law, first they partnered with banks, since banks, which are regulated by the federal government, can legally offer loans exceeding state interest caps. But when federal regulators cracked down on the practice in 2005, the lenders had to find a new loophole.

Just as in Ohio, Texas lenders started defining themselves as credit repair organizations, which, under Texas law, can charge steep fees. Texas now has nearly 3,500 of such businesses, almost all of which are, effectively, high-cost lenders. And the industry has successfully fought off all efforts to cap their rates.

Seeing the lenders’ statehouse clout, a number of cities, including Dallas, San Antonio and Austin, have passed local ordinances that aim to break the cycle of payday debt by limiting the number of times a borrower can take out a loan. Speaking to analysts early this year, EZCorp’sRothamel said the ordinances had cut his company’s profit in Austin and Dallas by 90 percent.

But the company had a three-pronged counterattack plan, he said. The company had tweaked the product it offered in its brick-and-mortar outlets, and it had also begun to aggressively market online loans to customers in those cities. And the industry was pushing a statewide law to pre-empt the local rules, he said, so payday companies could stop “playing cat and mouse with the cities.”

Jerry Allen, the Dallas councilman who sponsored the city’s payday lending ordinance in 2011, said he wasn’t surprised by the industry’s response. “I’m just a lil’ ol’ local guy in Dallas, Texas,” he said. “I can only punch them the way I can punch them.”

But Allen, a political independent, said he hoped to persuade still more cities to join the effort. Eventually, he hopes the cities will force the state legislature’s hand, but he expects a fight: “Texas is a prime state for these folks. It’s a battleground. There’s a lot of money on the table.”


Locate Loans With Bad Credit and Apply Online

MANCHESTER, New Hampshire, February 5, 2013 /PRNewswire/ —, the secure and independent lender introduction site, has announced the launch of a new simplified search-and-apply service. The site boasts a large number of reputable and reliable lenders whose loan products can now be applied to and compared through the site. This allows consumers to receive almost instant decisions.

At the spearhead of the service is the site’s live online application form. Taking less than a couple minutes to complete from any computer, 24 hours a day, the form is a welcome antidote to the long and arduous application procedures of store from lenders, banks and other offline operations.

LoansForPoorCredit has created a method for consumers to locate and apply for loans without needing to fit their schedules around opening hours. The site hopes that the widened accessibility of the service will encourage many consumers to use the site as their first port of call for finding and comparing online cash loans. made the announcement in the following statement.

“ understands the struggles of many Americans who work long hours and cannot find the time to make appointments to speak to lenders. This is why we have launched a newly improved search-and-application tool. We have created a virtual, online office packed full of lenders that are ready and waiting to consider your online application when you need it. 24 hour day, from any internet connected computer, an individual can access our site and complete an application to receive instant decisions from top lenders offering competitive unsecured loans.”

Convenience and speed are two prominent characteristics of the service. From the easy and quick application form, to the lightning-fast speed of search results detailing companies that can approve a loan, to the pay-out stage if a consumer accepts an offer. As the application form requests bank details, this removes any possible delay between acceptance of a loan and receipt of the money. The funds can be made available into the consumer’s checking account the next working day. Some lenders are able to make payments within two hours or less, where indicated.

To learn more or apply for fast bad credit loans go to:

Sam Malka :



7 Smart Ways to Use a Short-Term Loan | Payday Loan Tree Blog

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When you are looking for some quick cash to help out between paydays, your options may be rather limited. Oftentimes, banks or credit unions do not provide loans as quickly as you may need it, and you may also not be able to receive small amounts. Other loans from different kinds of lenders may even require collateral just to secure the money. However, when you need a quick solution, payday loans can help.

Many people are wary of using payday loans because of the controversy surrounding their use. While payday loans can pose a threat if they are mismanaged, this is true of any loan. However, to help ease your mind, here are 7 smart ways to use a short-term loan to avoid causing more potential financial trouble:

1. Only use short-term loans for emergency situations.

While you may hear this everywhere, it is a very solid piece of advice to follow. Payday loans are specifically designed to be short-term solutions and can be particularly dangerous if abused. With that being said, if you know that you can repay the loan amount with your next paycheck, they can be used to eliminate unexpected expenses in the meantime. However, they should not be used for everyday spending, impulse buys, or as long term financial solutions.

2. Find out if payday loans are legal in your state.

Depending on where you live, you may not even be permitted to legally obtain a short-term loan. That is why it is very important to do your research beforehand so that you do not get taken advantage of by potential scammers. However, the payday loan industry is always changing, so be sure to check the legal status of loans in your state regularly.

In the United States, payday loans are prohibited in:

* Arkansas
* Arizona
* Connecticut
* District of Columbia
* Georgia
* Maryland
* Massachusetts
* New Jersey
* New York
* North Carolina
* Vermont
* West Virginia

There are some states that make payday loans legal, but the rates are often so low that it is not necessarily profitable for lenders. These states include:

* Maine
* New Hampshire
* Ohio
* Oregon

Everywhere else, payday loans exist with varying regulations. While some states have very strict regulations to help protect borrowers, there are others that have very little. In some cases, some people argue that looser regulations allow for more flexibility of loan terms to create better borrowing experiences. In other cases, people also argue that this offers less protection for consumers.

3. Confirm that a lender is legitimate.

After you have determined the legal status of payday loans in your state, you have to make sure you work with a legitimate lender. Consulting with consumer affairs departments and government resources will help you determine this. However, just remember that working with a legitimate lender does not necessarily mean that you will not run into trouble.

4. Know your rights as a borrower.

Because you can run into trouble even with a legitimate lender, that is why it is crucial to know your rights as a borrower. You can refer to government resources for the loaning of payday loans in your state to become more aware of the legislation. You should also completely review and understand any loan agreements that you do not have to sign if you disagree with the terms and conditions. If you know of any lenders that are violating your rights, it is crucial to let your state regulator know by filing a complaint.

5. Protect your sensitive information.

When submitting applications for a short-term loan online, protecting your information will help prevent you from becoming a victim of identity theft. Even if a lender is legitimate, if they do not have proper security in place for transactions through their websites, you are at risk. Before you submit applications, confirm that any websites used for transactions are secured. You can typically see this through verification seals from Internet security specialists. You can also be reassured if you see “https” at the beginning of an address because the “s” indicates a secured connection.

6. Know your limit.

When you apply for a short-term loan, calculate beforehand exactly how much is needed. By doing so, you can avoid taking out more than you have to if it is offered by the lender. Although it may be tempting to take out more, limiting yourself will help keep the total amount owing low, which ultimately means more money in your wallet.

7. Pay on time.

As always, paying on time will help prevent more financial problems and also prevent your credit rating from being negatively affected. If you cannot pay off the loan, selling possessions or seeking a loan from a friend or family to put towards the payday loan is ideal. Doing this will at least get the payday loan out of the way so that you do not earn even more debt. It will also prevent you from possibly being taken to court by the lender as an effort to collect what is owed.

With these 7 smart ways to use a short-term loan, you should be able to shop for and use one with peace of mind. Just remember that every loan has the potential to be dangerous if mismanaged. As long as you practice responsible use of the loan, it can be an effective way to help out between paydays.


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