What you need to know about Payday Lending ?

When cash is tight, american cash advance may look like a quick and easy way to access cash. But cash advance come with high risk and consumers should be cautious. Before this year, payday lenders were not regulated. Payday loan or cash advance often resulted in mounting interest charges and repeated renewals of the debt, resulting in some customers paying more in interest payments than the amount of the original loan.

What is a payday loan or cash advance ?

A cash advance is a short-term loan for less than $2,500 secured by either a borrower’s check or a debit authorization for the amount of the principal and fees. These are referred to as payday loans or cash advance because the borrower is typically required to pay the full loan by the next payday,usually 14 days.

How much can be borrowed ?

Payday lenders cannot make a loan of more than 25% of the borrower’s gross monthly income (the amount paid before deductions). For a borrower with a gross monthly income of $1,000, a payday loan of $250 is the most the borrower can borrow. Under the new law, lenders are required to determine a potential borrower’s income eligibility and must use a certified verification data base system.

What is the term of a cash advance ?

The maximum duration of american cash advance is 35 days and the minimum is 14 days, unless the borrower agrees in writing to a shorter term.

What can a lender charge ?

The payday lender is allowed to charge of an administrative fee of $15.50 for each $100 borrowed as well as an additional $.50 for the cost of verifying if the loan can be made. These fees are the costs of credit for the loan. For example,this means that a loan of $250 will cost the borrower $289.25 to pay off the loan.

What must the lender tell the borrower ?

The lender must disclose and inform the borrower of two important things:-

(1) The Cost of Credit

While the lender is not charging interest, the lender must disclose the cost of the loan expressed as an annual percentage rate. If the borrower takes out a $250 loan and the payment period is 14 days, the annual percentage rate is approximately 404%. The A.P.R. measures the cost of credit or the cost for borrowing.

(2) The Borrower’s Right to a Payment Plan

The lender must inform the borrower of the borrower’s right to a payment plan. The borrower is eligible for a payment plan if unable to pay the loan in full at the end of the first payment period.

What is a payment plan ?

If you cannot pay off the loan when it is due you may ask to enter into a payment plan. The lender is obligated to accept a payment plan that can be for a minimum of 130 days in relatively equal installments based on the schedule of pay periods. No additional fees may be added.

When the borrower enters into a payment plan, the cost of credit decreases significantly because the borrower has more time to pay the loan and fees. If you enter into a payment plan you will not be permitted to take out another payday loan until 10 days after you make the final payment in the plan.

Consider the Alternatives :-

Many people turn to american cash advance because they do not believe there is an alternative, but consider:

• There are other lenders, such as credit unions and installment lenders, who offer to make small loans at lower rates.
• An employer might be willing to provide an advance on a paycheck.
• Obtaining overdraft protection on your checking account.
• The interest rate on a cash advance from a credit card is likely to be considerably lower than a payday loan.
• Family and friends might be willing to help.