Payday loans are a product that’s aimed at a specific need. There are people who need small-dollar loans or even 1000-2000-3000 dollar loans. In many cases, they have poor credit, so they’re forced to pay the high interest rates on payday loans. The short terms of the payday loans mean that the fees are relatively small, even though the APR is huge. Still, payday loans are controversial and there are those that want to see other solutions in the marketplace.
Back in February of 2020, the FDIC started a two-year pilot project. The idea was to study affordable small-dollar loan programs through traditional financial institutions. The program involved 30 banks ranging in size from small local banks to national banks.
The idea behind the program is to get these banks to experiment with small-dollar loans. Specifically, these loans would:
Be for no more than $1,000.
Have a payback period of between a pay cycle (usually two weeks) and 36 months.
Charge an annual percentage rate (APR) under 36 percent (ExtLoans).
Include no penalty for prepayment.
Have fees that are limited to cover actual expenses.
Include an automatic savings component.
The study has gathered a variety of information in the process of this study. The study would consider whether the bank already offers small-dollar loans, whether it would implement a new program, how big the program would be, how it would be structured and marketed, and how the application process would work.
The study is complete, but all of the data isn’t in yet. You can look at data from the first year of the pilot, however.
If the program shows that these programs can work well for banks, it will likely mean options for people who, up to this point, have had to turn to payday loans. It will also put pressure on payday lenders to offer better terms. It will be interesting to find out the results of the study, and to see whether traditional lenders can really compete and even be profitable under the specific guidelines in the program.…
Dealing with debt can be difficult, especially if that debt is high-interest debt such as a payday loan. While you may be able to pay off a payday loan rather quickly, it can be tough to deal with other sorts of debt like out-of-control credit cards.
Because so many people find themselves in a tough spot right now, there are many companies offering services to help you deal with debt. In some cases, these companies are legitimate and helpful. In some cases, they’re shady, operating within the law but in an unethical fashion. In other cases, they will lie to you outright.
Whenever you hear a sales pitch from a company that wants to help you deal with debt, you need to listen carefully. Here are some warning signs:
Watch out for overpromises. Yes, some companies can help you to pay off your debt for a smaller amount than what you owe. Watch out for a company that guarantees that it will happen, however. There is no guarantee that any given creditor will be willing to accept any sort of partial payment. Instead, contact your creditor yourself, and find out if they have options for you.
Pay attention to fees. Some debt reduction companies charge a hefty fee. Even if they claim it’s only a “small percentage” of what you’re paying, find out exactly how much those fees are. Whether it’s a regular monthly service fee, a fee for establishing an account or a final fee.
Keep communication open. If a company tells you to stop communicating with your creditors, watch out. You may still wind up with late fees, interest and other charges. Your credit score may also be hurt.
Be realistic. If a company tells you that creditors won’t sue you for not paying on an unsecured debt, be careful. Creditors can and do often sue. If they win a judgment, they can even garnish your wages.
Know how credit reporting works. If a company claims that they will “fix your credit report,” they aren’t being exactly honest. The only way your credit report can improve is if you ask the credit reporting company to correct errors and if you do better about paying your credit.…