Interest rates of 400% (that's four, zero, ZERO) will be a thing of the past for servicemembers and their spouses once a government-imposed cap on payday lenders is instituted.
Have you or someone you know taken a payday loan company up on its offer?
What can these "convenient" cash quickies cost?
According to some estimates:
Payday lenders offer short-term loans against borrowers'paychecks and charge fees. Borrowers who cannot repay the loan by the next payday often"roll over"the loan repeatedly, leading to more charges.
The average annual percentage rate for payday loans is about 390 percent. As lending fees pile up, borrowers can end up paying an annual percentage rate of 800 percent or more.
Aside from the financial crises these types of loans and the interest rates could cause, the legislature pointed out military personnel were adversely affected in other ways. Many have lost their security clearance thanks to the negative credit. Others have been unable to deploy or distracted from their missions if deployed while those in charge of their finances struggle to figure out what to do. Some estimates calculate one in five service members are payday borrowers.
The interest rate would cap at 36% under this provision. Still not a stellar rate, but compare it to 800% and it seems darn good! Additionally, I am sure there are some for whom a payday loan was a stop gap measure and a lifesaver when used that one time. It appears just as likely from my reading, however, that these types of loans have equaled financial disaster for some who chose to take them.
How does one recover from the adverse effects a loan like this could have on their credit if they fall behind? What advice do you have to help others avoid using a service that could harm their credit?
We'd love to hear your stories, advice or tips in comments!