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Why Payday Loans Are Good and Bad?

Payday loans are short-term loans that allow borrowers facing cash shortfall to meet their essential expenses. These loans are similar to a double-edged sword having both good and bad points. In this article, we will look at both the benefits and risks attached to the payday loans that can help you in making an informed decision regarding the loans.

The Case for Payday loans – The Good

The best thing about payday loans is that you do not need to have a good credit score to obtain the loans. These loans can be obtained even if you have a low credit score. Moreover, the loan amount does not require you to offer any collateral, as is the case with a traditional loan. This makes it perfect for people who don’t have enough assets to fulfill requirements of conventional bank loans but want the loan to pay for essential or emergency expenses.

Another plus point of payday loans is that the loan application process is a breeze. You don’t need to fill a lengthy application form or submit a lot of documents. You can apply for the loan by filling certain basic information, and receive the loan in as little as 48 hours after making the application.

The Case against Payday loans – The Bad

While payday loans help in easing financial difficulty due to a cash shortfall, some payday loan lenders charge such a high rate of interest that it makes it difficult for borrowers to repay the loan amount.

The following case that was filed against All Credit Lenders will help you understand why you should be wary of selecting a payday loan lender.

All Credit Lenders, an Illinois-based payday loan lender has been ordered by the state court to waive balances and stop collections of more than 5,000 borrowers amounting to $3.5 million. The case has been filed against the company by Illinois Attorney Lisa Madigan on the charges of deceptive costs and fees.

The settlement required the payday loan lending company to stop collections of borrowers who were given loans that contained hidden charges ranging from 350 percent to 500 percent. According to the state ruling, the interest rates were disguised as ‘required account protection fees’.

Apart from All Credit Lenders, five other lenders in the state were ordered to stop collections of loans containing deceptive charges. Madigan who had filed the case in the court said that the payday loan lenders committed appalling violations of laws relating to these loans that were put in place in the state to protect the consumers against charging exorbitant rates.

All Credit Lenders, launched in 1999 and operates different online sites and storefront locations, was found guilty of charging illegal fees and failure to disclose those fees to the consumers. As a result, the borrowers ended up owning large amounts due to rates that were outlawed by the state laws.

The case against the payday loan company was first filed in 2014 that alleged that the company had validated the states’ 36 percent rate cap. Moreover, it was alleged that the company had failed to disclose the rates to the clients. As a result, the customers were caught in a debt trap creating financial difficulties for them.

Most of the loans that the company had given to the consumer were between the ranges of $100 to $2,000 having a disclosed rate of 18 percent to 24 percent per annum. However, the customers were also required to pay the account protection fee of a minimum of $10 for every $50 of the outstanding balance. The lawsuit said that this increased the rates considerably to between 350 to 500 percent.

The lawsuit stated that the loans were structured in a manner that borrowers who paid as per the schedule would never be able to pay-off the loans in full. A customer mentioned in the lawsuit had taken a loan of $450 from All Credit Lenders in 2012 to prevent disconnection of the electricity. The interest rate that was disclosed to the borrower was 24 percent, but the loan also contained protection fee of $11 per $50 of the balance due. The borrower presumed that the loan would be paid by the end of the year. However, due to the exorbitant rate of 500 percent per annum, the high-interest rate payment and protection fee made it difficult to repay the loan within the specified time.

Conclusion

In the end, you should be careful when selecting a payday loan lender to meet your cash shortfall. Make sure to read the fine print of the loan agreement to ensure that you don’t inadvertently take on a loan that could lead you to a debt hole.