One trap we see a lot of people fall into is payday loans. While they might sound tempting at first (No credit check? Cash within minutes?), you should be wary of the risks associated with this lender option.
Payday Loans Definition
A payday loan is a short-term, high-cost loan with a typical lifetime of about two weeks (until you get your next paycheck). Another quality of a payday loan is that it totals $500 or less. Payday loans are becoming more and more popular because of how easy it is to get one–these loans are offered not only at storefronts, but also online. They’re also called cash advance loans or check advance loans.
Repayment for these loans comes in the form of a post-dated check for the full balance (including fees). Sometimes, a lender may require authorization to electronically debit the owed amount from your bank. Your loan is either transferred via a prepaid debit card, deposited into your account, or given to you via check or cash.
Though the convenience can be enticing, payday loans come at a price. With interest rates of $15-$20 for every $100 borrowed, you’re looking at an APR ranging from 391% to 521% This can vary depending on the type of payday loan you get: check advance loans, post-dated check loans, deferred deposit loans, and cash advance loans.
What to Look out for with Payday Loan Companies
These no credit check loans may sound appealing with their lump sum payment, manageable amounts, and quick turnaround, but there are a few other factors to consider as well.
For one, a payday loan is going to cost you in the form of fees and interest. Most loans come with a fee of $10-$30 for every $100 you borrow. Interest rates on payday loans are also some of the highest in the industry, and fees for late payments can really add up. Consider the likelihood that you’ll be able to pay back the loan in full before committing to a payday loan. You want to already have responsible spending/saving habits in place before you take this risk.
In addition, the loans must be repaid in a short period of time. If you keep the loan for longer than the allotted time (typically two weeks) your fees start adding up. If the issue continues, you could be reported to the credit bureau and see a drop in your credit score. This will affect your chances to receive future loans.
Before choosing a payday loan lender, look at their online reputation. Do they have several negative reviews? Are they responding to those negative reviews with an explanation? By Googling ‘payday loans in Kansas City’, you should be able to get a quick snapshot of some of the options out there and online reviews.
Note: If lenders see that you’re taking out multiple payday loans over a few months, they may think you aren’t a trustworthy lender. Some won’t lend to you at all if they see that you’ve taken out a payday loan.
What’s Being Done to Stop them?
Luckily, there are some companies trying to combat predatory payday loans. Just last year, Onward Financial Inc. received a $1 million grant from the Communities Thrive Challenge. With this money, the program will be able to expand on its mission to help employers encourage their workers to start a savings plan, learn about personal finance, and borrow for emergencies at low interest rates.
Kansas City was chosen as the HQ for this company because of the large payday loan presence in Kansas City. Onward seeks to give desperate people an alternative to payday loans that will help them break the cycle of debt.
In addition, the Consumer Financial Protection Bureau has chosen Kansas City as the place to announce their new rules. These rules will help enforce guidelines on predatory payday lending.
Luckily, there are some regulations in place to help protect borrowers from unfair practices. In some states, payday lenders have a maximum amount they can charge in loan fees ranging from 10-30%. Other states have caps on the cost of the loan, fees, and maximum loan amount.
Payday loans also have a certain set of criteria that you must meet to be eligible. These include being at least 18 years old and showing proof of income. These regulations vary from lender to lender, but they’ve put in place to ensure you aren’t taking out a loan that you’ll never be able to pay back.
And while it may seem like a no-brainer to read the fine print of the loan you’re signing up for, many are too trusting for their own good. Just Googling ‘payday loans Kansas City’ brings up a slew of websites offering fast cash with hardly any requirements. Without the financial know-how to read between the lines, anyone could fall prey to a payday loan.
Alternative to Payday Loans
Luckily, there are a few other options out there for you if you need money fast in Kansas City. A personal loan is one of the most popular alternatives. These installment loans offer fixed monthly payments, require no collateral, have longer repayment terms, and have lower interest rates than payday loans. At Helix, we believe it’s unethical to issue loans that we know a customer can’t afford to repay. That’s why we run credit checks and require proof of income.
If you’re looking for money to hold you over and need it within the next 24 hrs, take a look at our online personal loans and see if we would be the right lender for you. If you find we would be a good fit, go ahead and fill out a personal loan application. We’ll process your request and, pending approval, have money in your bank within one business day. We can also approve borrowers for up to $4,000 vs. the $500 max typically offered by your neighborhood Payday lender.