Do You Have Too Many Payday Loans?

One of the most common questions that people who already have a payday loan ask is whether it’s allowed to have more than one. The fact of the matter is that the answer isn’t particularly cut and dried. It can be a bit muddy and unclear.

Still, there are three major areas you need to look at if you’re considering taking out more than one payday loan:

Legal Issues

First of all, you need to consider the regulations that may exist in your state. Typically, there aren’t laws that restrict your ability to take out a loan. Instead, those laws have more to do with payday lenders. Some states may have caps on the amount that payday lenders can loan as well as a limit on the number of loans.

There usually aren’t laws that prevent you from getting a payday loan from one lender and then going to another payday lender for another loan. Now, we’re not suggesting for one moment that this is a good idea (it’s not, usually). We’re just suggesting that it isn’t a legal issue.

Lender Issues

The next area to consider is the lender’s policies. Some payday lenders will ask you if you already have a payday loan with another vendor. If you say that you do, they won’t loan to you. Not all lenders operate this way, but many do.

You don’t want to misrepresent your situation to the payday lender. If you do and if you wind up not making your payday loan payments, the lender can use the fact that you weren’t honest on your application in a civil suit against you.

Personal Issues

The real question is whether or not it’s a good idea to take a second (or third or fourth) payday loan. The fact is that payday loans come with severely high interest rates, and having more than one prolongs the time that it will take you to pay them off. You don’t want to run the risk of getting caught in the payday loan trap where you can’t pay off your loans and wind up getting more and more into debt.

Another Way to Get a Payday Loan

When you think about payday loans, you normally think about that little building in the local strip mall that promises “instant cash” and “loans fast” on their windows. They probably use flashy neon signs. There’s a good chance that there are bars on the windows, which are probably designed more to make you feel safe than anything else.

While visiting a payday lender’s retail location is certainly an option, it isn’t the only option. You can also get a payday loan online via a number of different payday lenders on the Internet.

Here are some things to keep in mind when you’re shopping online for a payday loan to keep yourself safe:

Consider starting with a site that features multiple lenders. There are some online payday loan review sites that look at different lenders and provide reviews. The best ones actually give you the opportunity to write a review for any given payday lender. This also, of course, allows you to read others’ reviews of the payday lender.
Check out the website independently, too. You should check some consumer report websites, as well, to see how the lender’s reputation is. If a given website is operating a scam, you can usually find out about their practices with just a few minutes of research online.
Don’t be in a hurry. The fact of the matter is that the payday loan will come fast enough. You still need to take the time necessary to be able to review the lender and make sure they’re legitimate, and that you’re willing to accept the terms of the loan.
Make sure it’s legal. Not all states allow you to take out a payday loan online. Many do, of course, and it is usually up to the lender to verify that you live in an eligible state. Still, you need to find out if it’s legal in your state before you ever apply for an online payday loan.
Consider alternatives. Before you ever take the payday loan, make sure you’ve exhausted your other options. Borrowing money from family or asking for a paycheck advance from your boss might be a much better option, and a way for you to avoid the dramatically high interest rates that payday lenders charge.
Make sure you can pay it back. Don’t take out the loan unless you’re certain you can pay it all back on time. If you can’t, you’ll wind up in a vicious cycle where you’re taking out loan after loan, all at great expense.

Starkville Bans Payday Loans

The town of Starkville finds itself in a situation that’s pretty common in many places during these tough economic times. It seems they’ve seen a quick expansion in the number of payday lenders within the city limits over the past few years. Accordingly, Starkville has decided not to allow any more payday loan businesses into their city.

No New Businesses

Currently, there are around 20 payday loan businesses in Starkville. The Aldermen of Starkville voted unanimously that these kinds of businesses, which provide high interest short term loans, should be denied licenses and certificates of occupancy for doing business for the next year.

This moratorium on new payday lenders is just the first step. It is expected that the aldermen will seek a more permanent solution during the next 12 months that will prevent new payday loan businesses from sprouting up for good.

Hands Off Existing Businesses, for Now

The resolution doesn’t affect existing payday loan businesses. However, it does state that, when an existing business goes out of business, their license and their certificate of occupancy can’t be renewed or transferred. This means that the number of payday loan businesses will, eventually, dwindle as businesses shut down or need to move from their current locations.

Taking More than they Give?

The problem with these businesses, according to one Alderwoman, is that they take more money out of the local economy than they put back in. She said that many of the businesses are part of national chains and that most of the profits funnel elsewhere. In addition, she complained that they tend to crowd out other kinds of businesses.

Not Just Payday Lenders

There are other businesses that fall into this category, along with payday loan businesses. There are “car title loan businesses” which make small short-term loans using the equity in a car as collateral. Banks, however, are still allowed to make that kind of a loan.

Check cashing businesses are affected too. The moratorium sees those as businesses whose primary purpose isn’t banking, and who don’t provide face value of a check.

Outspoken Voices

Some residents did speak out against the moratorium. One man argued that the moratorium hurts the city because it reduces potential property taxes. In addition, he complained that the moratorium goes against the spirit of American free enterprise.

What the Aldermen will do over the next 12 months remains to be seen, but what is certain is that this issue is far from resolved in Starkville.

Worse than Payday Loans

Payday loans get a bad rap sometimes. To be sure, you’re going to pay a hell of a lot more for a payday loan than you are for a traditional loan, personal loan, home loan or even a credit card. Payday loans charge interest rates that, in many places, can get as high as or even exceed 200 percent. While this translates to a fee of about $20 per $100 borrowed or so, it’s still a high rate if you were to keep taking out the payday loan over and over again for a period of a year.

What’s worse than payday loans??

OK, so 200 percent interest is pretty significant. It’s ten times most credit cards, and twenty times the interest rate of the most expensive mortgages.

What if we told you that there are loans out there charging ten times what a payday loan charges? That for these kinds of loans, you’ll pay as much as 2,000 percent? Would you believe it?

Well, it’s true. There is a worse deal than a payday loan. But, they’re usually only available during the first four months of the year.

“Anticipation” loans

Tax refund loans are sometimes also known as “refund anticipation loans” or “instant refund loans.” They promise people that, as soon as their tax paperwork is completed, they can have their tax refund. All they charge for that is a simple fee.

The problem is that this is actually a loan with a huge interest rate. If you have a refund of less than a thousand dollars but pay a $99 fee, you can be looking at a huge throwaway on the interest.

A growing problem

The use of these kinds of services is aimed at lower income families, but people in the middle class also fall for it. Around 12 million taxpayers took these loans last year, and paid around $900 million in fees for them. All to get their refund in a couple fewer weeks.

Better solutions

There are better ways to do all of this. One, of course, is to change your income tax withholding so that you just don’t get as much back. You’ll have your money during the year, instead.

The best solution, however, is patience. The IRS has greatly improved in terms of efficiency, and today it can take on an average less than three weeks to get your tax refund. If you file electronically and you have your refund direct deposited into your bank account, you can have it within as few as 10 days.

Legal Loan Sharks or Legitimate Business

Payday lenders are under fire constantly. Consumer advocates and politicians like to take shots at payday lenders. They use words like “usury” or phrases like “loan sharks.” They compare today’s payday lenders to mafia-connected loan sharks of the early 20th century.

Still, opponents fail to recognize something: there wouldn’t be payday lenders if people didn’t need small short-term loans. People needed them in the early 20th century, and people still need them in the early 21st century.

Back then, the loan sharks were also called “salary buyers.” They’d “buy” a person’s upcoming salary. They’d do it for a hefty fee, often charging as much as $30 per $100 borrowed. In today’s terms, that’s about twice what most payday lenders charge.

So, are payday lenders loan sharks or legitimate businesses? It depends, at least in part, on your own situation. If you don’t ever need a short-term loan, you might not have an opinion at all. If you need them often and have paid tons of fees, you might resent them and claim usury as well.

However, if you’re like many people who use payday loans as an occasional way to meet immediate expenses, you probably see them as a legitimate and even helpful business.

The question of whether these businesses should be shut down isn’t even the right question. The real question that consumer advocates should ask is, “what alternative can be offered to payday loans?” Instead of encouraging legislation to ban payday loans, they should focus their energies on finding alternatives. Whether that’s legislation that encourages traditional lenders to make smaller-dollar and shorter-term loans, or whether that’s some sort of charity work, it’ll probably do more good in the long run.

The biggest danger to consumers when it comes to payday loans seems to be the idea of rolling over. When you roll over a payday loan, you take out another loan on your payday to cover the previous loan. When you do this, the amount that you pay in fees grows and grows over time. Breaking the payday loan cycle is the only way to be sure you’re not being taken advantage of.