Avoid the payday loan debt cycle

Payday loans are often used as a crutch by many people who can hardly manage their personal finances properly. Often this ‘crutch’ can become a financial coffin that leads to a debt flow that seems unending.

When used properly and with caution, bad credit payday loans are a useful financial instrument that can actually be a better choice than some other alternatives, such as late fees and bounced check charges. However, many people end up taking out a payday loan to prevent the aforementioned charges and do not pay the payday loan back as promised. This causes the borrower to pay the high loan apr and the late fees and bounced check charges, causing more financial hardship. It becomes a cycle that is hard to break.

From an outsiders point of view, this cycle may seem easy to avoid but for many people it is a fact of life. The people who get caught in this trap usually have good intentions as far as repaying the loan back on time but they often borrow more than they can comfortably repay in such a short period of time. Often other expenses are overlooked when they apply for the loan and once the money is in their account it is too late, there will be an automatic withdrawal from the chosen bank account in two to four weeks that can cause other checks not to clear. And the cycle begins.

Once the borrower fails to repay the payday loan on time, he will incur more charges on top of the original amount and this new amount is due to be paid in full in another two to four week period. If in this time frame, the bank account has not been brought back up to a level to cover the payment the borrower faces more fees, bank charges and other expenses. Often times, the borrower will be forced to close the banking account to avoid any more bank fees associated with the negative status of the account.

This cycle can be avoided though. By applying some common sense practices and viewing ones financial status in reality the following tips can help avoid the payday loans hardships mentioned above:

1. If you need a payday loan for people with no credit history, borrow the least amount that you can to take care of whatever financial crisis has come up.

2. Never borrow money that you honestly know you will not be able to repay on time.

3. You need to know the exact amount that will be deducted from your bank account before signing any loan documents.

4. If something happens after you take the loan that causes you not to be able to repay on time, contact the lender immediately. Most payday loan lenders are willing to work with borrowers so the debt cycle can be avoided. After all, the loan company has a vested interest in helping you repay them the money they have loaned.

5. Before availing loans within 24 hrs, check if there are any other resources available to help you. Perhaps a small loan from family or friend could get you by. Some people can even get a partial amount of their paycheck advances to them just by asking at their human resources department.

Following these simple tips, a payday loan can be a financial instrument that is helpful and does not cause further financial hardship.

Bank of Wal-Mart – coming soon to neighborhood near you

So you think Wal-Mart is only a giant retail store that sells just about everything? Think again. According to MyBankTracker, Wal-Mart will be launching a bank in Canada very soon with a Wal-Mart credit card as well as they are a full licensed bank in that country.

Apparently back in 2016 the company tried to get into banking in US but was unable to secure a card processing center in Utah that would handle the store credit card services.

Bad for Banks

If Wal-Mart starts offering financial services directly, they can be a huge threat to US banks specially the small banks and credit unions. Wal-Mart already is into check cashing business that cashes checks for a very small fee cheaper than other paycheck advance stores. Also they have a money card where many people use to take a payday loan. Offering other banking services, in opinion of some, could trigger unfair competition that could put local banks and financial institutions offering the similar services out of business or push them to corner where they have to cut costs and lay people off.

Good for Consumers

If Wal-Mart becomes an actual bank with its own credit cards, as opposed to their current model where they partner up with other financial institutions to do that, then in theory that could costs for consumers as Wal-Mart can offer its products even at lower price. Credit card and debit card fees are very expensive for merchants even the ones as big as Wal-Mart. Also charge backs and fraudulent credit card activity ends up costing retailers the most. By becoming bank Wal-Mart also hopes they can reduce these problems.

That means consumers can buy items for cheaper from Wal-Mart, and perhaps even take loans including payday loans for cheaper. That would cause other banks and lenders to be competitive to offering more affordable solutions to their consumers and at the end consumers will win.

More Forms Required for Small Business

More tax codes, more fees, more paperwork. That is the latest news for small businesses. From one end, we hear the White House wants to create jobs by aiding small business in forms of small business loans and even payroll cuts, but we see actions that are contrary to that which is a massive health care law that requires more paperwork for small business.

Read more this in an article on CNN Money.

Financial reform bill pass congress: 60-39

Financial overhaul bill passed the senate vote today with 60 required votes and it’s on its way to President desk to be signed. The goal of of the reform bill is to further regulate the financial industry in particular the banks and the lenders including the short term lenders. This bill was passed to regulate the financial industry in order to prevent and avoid another big financial disaster as result of sub-prime mortgage crisis that led US economy to deepest recession after the great depression.

Some experts claim that this bill will have unintended consequences as banks will may shift business either abroad or pass on their cost to the consumers.

And that are evidence for that claim. For example today BOA announced to charge new fees, including online service fees and teller fees, to make up for the loss revenue of over draft fees and other fees that will be capped by this reform bill.

How does it affect the payday industry?

As result of this bill, a new government bureau will be created called Consumer Financial Protection Bureau or CFPB. This bureau will set caps and limitations on interest rates, fees, and amount of loans that can be offered by the lenders including the payday lenders. Payday lenders already feel regulated and scrutinized by the States they are licensed from and they fear that the additional federal regulations limits may hurt their businesses dramatically leaving them to close their doors leaving thousands unemployed.