Alternatives to Payday Loans

In these tough economic times, many people find themselves turning to payday lenders like SolidCashSolutions to meet short-term financial obligations. There has been a lot of press about these businesses recently, as a house bill was defeated that would have limited both the amount of payday loans consumers could have at one time and the number of times a loan could be rolled over. These initiatives were aimed at helping consumers, who often pay back more than double the original loan amount due to industry-standard interest rates of 390% – 780%.

Because of these lending practices, payday loan operations are now banned in 15 states and the District of Columbia. But cash-strapped consumers can just as easily now turn to the web to find payday lenders, many of whom aren’t even based in the United States and who avoid federal and state oversight by operating online. Since 90% of the industry’s revenues come from repeat payday loan business it is important to consider alternatives to payday loans before getting hooked into a cycle of debt.

First, an ounce of prevention: before you find yourself in need of a payday loan, start a savings account. Many employers will direct-deposit funds into your account each pay cycle. Doing it this way means you won’t even see the money before it gets tucked away. Having something to fall back on when times are tough is a great way to avoid getting trapped in the payday loan cycle.

But what if it’s already too late for that? You’re in the midst of a cash crunch. Still, a payday loan may not be your only option. See if you can get a cash advance from your employer. Also, look into getting a cash advance from your credit card company. While the fees and interest may seem high at first, compare the total cost to the long-term costs of rolling over a payday loan 12 or more times. If those options won’t cut it, contact your utility company or creditor to see if they will work with you on an extended repayment plan. While this does take some time and can be an uncomfortable conversation, it can often be done at little or no cost to you.

If you’ve done all these things and still need cash, consider other types of lenders before walking into that payday loan office. Talk to a friend or family member about giving you a short-term loan. Check with your religious community to see if they can help. And contact social service organizations that service your community. There are often options out there that most people don’t know about that could help out during a crisis. Lastly, consider asking your bank, credit union, or financial services organization about a small loan. Often they have terms that are much more agreeable than payday loan companies, and getting such a loan can help you build or reestablish good credit.

Is Your Payday Lender Legal?

Payday loans meet a very specific need to a very specific subset of the population. People who can’t get credit via other means find themselves visiting the payday lender. They go there to get high-interest, short-term loans to meet temporary needs. In and of itself, this isn’t illegal. Many states place certain regulations on payday lenders, of course, but the basic concept isn’t illegal in itself.

The problem comes with some payday lenders who are operating outside of the law. Some lenders bend the law, and some outright break it. If you’re going to keep from being taken advantage of, you need to check out your lender before you sign for the loan.

Here are some things you can do to make sure your lender is legitimate:
Is Your Payday Lender Legal?
Verify the lender’s right to legally operate. If you’re going into a brick and mortar payday loan store, you can ask to see their state licenses. Every state has different regulations for lenders, but all require some sort of licensing.

Read all of the documentation. No, it’s not likely that you’re going to understand every line in a payday loan contract. You can ask to take the contract and have an attorney look at it, but most of the time if you need a payday loan you probably don’t have money to hire an attorney. So, go through the contract and ask about anything that’s unclear.

Check consumer reviews. A simple look at your local Better Business Bureau page can often tell you about how the company conducts business. You might also be able to find information about the company by searching through local news media websites to see if there have been stories looking at the lender.

Be careful when borrowing online. There are online payday loan lenders. Not all of these lenders are able to operate in every state, however. Before you make any transaction online, verify that the business is legitimate.

Don’t be afraid to wait. Obviously, if you need a payday loan, you’re under some time pressure. Still, sometimes waiting just a single day will present other opportunities. At the very least, it will give you some time to research the lender and make sure they’re legitimate.

Colorado Will Be Saying Goodbye To The Payday Loan Business

Governor of Colorado has recently signed an epic payday loan bill into law. This bill comes in the form of House Bill 13511. This bill will change the normal payday loan structure into a short-term loan. This short-term loan will be six to twelve months in length and come with a much lower interest rate.

A brief history
Payday Loan Business
Colorado politicians have wanted to institute some form of payday loan reform. Representative Jhon Feran has been working on payday loan reform since he arrived in the Legislature three years ago.

Critics for the payday loan industry have fought long and hard to keep the current structure. Their arguments have primarily focused around the idea that a payday loan provides credit to people who cannot get a loan from a bank.

Supporters of this new bill have a different view on the payday loan industry. Supporters argued that payday loans feed on the poor with predatory practices. These practices include outlandish percentage rates and encouraging people to take more payday loans to pay off old payday loans.

The consequences of this new bill

Consequences of this new bill are already rolling in. Over the past weekend, at least six payday loan stores closed their doors. Many more payday lenders will follow suit. Many of these sources will close their door before the bill ever becomes law.

The reason for these closures is due to the repayment schedule on new loans. Payday loan stores will need a higher cash flow, as loans will not be turning over on a bi-weekly basis. Now these payday loan sources have to wait six months before the loans bring in money.

It is not all chocolate and gumdrops

House Bill 13511 might sound like a grand idea, but like all laws, there are some gotchas. First off, the current payday loan annual percentage rates can get as high as 400 percent. Under the new law, the maximum percentage rate a loan will have is 45 percent. This might sound great until you add in loan fee. These fees could push charges to over 100 percent of the original loan amount.

Do you remember that higher cash flow need from earlier? Payday loans could start seeing skyrocketing fees to help make up for that lack of cash flow. Payday loans make their money off high interest rates. With a cap on the interest rate, what will happen to the lending fees?

A little new and a little old

This new law goes in effect on August 11, 2021. Any new loans made at that time will have to follow the new interest and time frame guidelines. Any preexisting loans are still free to follow the current laws until next year.

Colorado is taking a bold move to change the payday loan industry. How this will all play out for businesses and consumers has yet to be fully determined. With six businesses already closing up shop and more to follow, is this truly a good deal? Better yet, what will this do to the industry across the country? What state will follow this example? Time will tell.

Can Payday Loans Get You out of a Jam?

Payday loans get a bad rap. To be sure, the interest rate on a payday loan is higher – often as much as 20 times higher – than just about any other form of credit you can get. Borrowing at a 350 percent interest rate is never a truly good idea.

That’s not the point of payday loans, however. They aren’t meant to be used casually, in order to buy something on sale or take your family out for a meal at a fancy restaurant.

Payday loans are supposed to get you out of a jam.

Can they really do that, however?

Well, let’s look at an example situation. We’ll look at a guy named “Joe.” Joe isn’t a real person, but he represents the situation that lots of folks face.

Joe has a job where he brings home about $350 per week, after taxes. Of that money, his regular bills and spending habits take up about $325. Most weeks, he blows that extra $25 on frivolous stuff.

Unfortunately, Joe finds himself in a jam. His Dodge pickup gets a flat tire, and he needs $100 to replace it.

Joe needs to act fast, or he’s not going to be able to get to work and earn his $350 per week. Unfortunately, public transportation isn’t an option as Joe lives in a small, rural community. He works in the nearby city, so walking or even bicycling to work isn’t an option either.

Joe doesn’t have good credit. He doesn’t have a credit card, or at least not one with an available balance. His family and friends won’t loan him the money, and his boss won’t give him an advance on his paycheck.

So, what can Joe do?

Well, a payday loan may be one option. He can take out that loan for a fee of, let’s say, $25. On payday, he should have $50 extra. He can’t pay off the entire loan this way, of course.

However, during those two weeks, maybe he picked up some extra shifts at work. Maybe he sold some stuff on eBay. Maybe he ate Mac and Cheese for two weeks. Chances are pretty good that, over two weeks, Joe can figure out where to get the $75 difference.

Obviously, Joe explored all of the other options before using a payday loan, and so should you. Like Joe, if you do take out that payday loan, make sure to pay it all back, even if it means PB&J for two weeks, so that you don’t have to take out another.

A Payday Loan Success Story

Let us take a stroll down story lane. This is a fictional story. The point is to illustrate when it might be ok to consider a payday loan. No harm will come to animals in the writing of this story.

The setup
Let’s say you live in a very rural area. Public transport is not an option. The only bus you see on a daily basis is the school bus. You truly live in the sticks.

You also live twenty miles from work. Walking and riding a bike to or from work is not an option as you have bad knees. You moved away from family many years ago. Due to your location, car-pooling is not an option. Again, you are at the mercy of your own devices.
A Payday Loan Success Story
The problems arises
One day you are coming home from work and your engine stalls. You get out and look everything over, but you can’t find anything wrong. Therefore, you call a tow truck to come pull your car to the repair shop. This tow bill has now cost you the last dime in your bank account. Good thing this situation happened on Friday.

Saturday rolls around and you receive a phone call. The prognosis on your car is not well. Your water pump has gone and needs replacement. Your car is now completely un-drivable. You need your car to get to and from your job.

The service tech tells you that it will run you $150 for parts and labor. You just wrote the last bit of money you had to the tow truck company. The auto repair shop does not know you so they will not take a post-dated check.

The financial setup
With the last of your money gone and nobody to turn to you decide to hit up the payday loan place for a quick bit of cash. This costs you $35 to do. This is better than bouncing a check and paying $70 in fines from the bank and auto repair shop.

With your money in hand, you go and get your beloved car from the shop. Everything works great and you are good to go for another week. You mark down that you have a week to pay the money back. This is no problem as you payday happens in two days.

The repayment
Payday has finally arrived. You are now able to restock your groceries and eat. Even better, you can go and repay that payday loan you took out to fix your car. You walk in with a smile and pay off the payday loan people. The world is right once again.

The moral
While getting a payday loan should be one of the last things you do, there are desperate times that you have to bite the bullet and snag a payday loan. This story is a bit overblown, but the point is that you paid off the loan as soon as possible. It cost you $35 for the payday loan versus the $70 in bounced checks. If you had not paid the loan off on time, the amount for the payday loan would have sky rocketed. If you get a payday loan, you must pay it off within the allotted period.