Tag Archives: money
Predatory Payday Loans?
At one point it appeared that the entire payday loan business was made up of a small group of loan sharks out only to make a buck off the backs of anyone who would take out a loan. This perception has changed in recent years with new regulations. Payday loans are even able to help some people save money!
At first look the interest rate appears to be pretty high, but it is often much less expensive than some of the alternatives.
Now we will look at some common misconceptions about these loans. First, payday loans are overly expensive, well probably. Of course being expensive is only relative to what the alternatives are. Taking out a payday loan instead of bouncing a cheque in most cases is a cheaper alternative. Fees for bouncing a cheque are quite often much higher than the interest paid for these loans. This is not just marketing hype by the short term loan companies, it is a fact.
If you calculate the costs it is easy to see the benefits of the payday loan over the bounced cheque. Next it is claimed that payday loans prey on the poor and under employed. However, this is not the demographic that these loans are targeted to. Industry numbers prove that the loans are not targeted to people who cannot afford to repay the loan. It would be foolish to loan money to people who can’t repay. In fact, the people who use the payday loan services are generally lower to upper middle class and have incomes in a range of thirty six thousand dollars per year. If this is the case why do they turn to short term loans then? Because it is fast! Payday loans can be deposited into a person’s account in minutes or hours and not the potential several day a bank may take. A main point is credit rating. Most people the avail these loans have less than perfect credit for whatever reason.
When something happens unexpectedly these people have few alternatives to get the cash they need to make it through the situation. Now, it has been said that payday loans cause people to get into a cycle of debt that harms them further. Well, no one forced the person to take out a loan and if they did so knowing they couldn’t repay, it is not the responsibility of the loan provider. What it amounts to is the borrower not exercising good judgment and perhaps not being honest about his finances. When these people avail a loan knowing they money will not be available to repay it, it is the individuals fault, not the loan companies. The loan was not made without the borrower’s consent. The borrower had to apply and sign an agreement stating they have the ability to repay on time.
No one was forced into the contract. The perception of a loan shark is not deserved and is actually far from the truth. Most of the people whom are hurt by payday loans are the people who knowingly enter into an agreement they can’t honor. There are some exceptions though, and the loan companies gladly work with these people to get their money back. If the loans were predatory as has been claimed, fewer people would actually be able to repay the loans and the companies would go out of business quickly, but this is not the case.
Cars and Credit Reports
The Problem
I was driving home from the store the other night when I noticed a license plate that made me laugh to myself and then I proceeded to feel sorry for the poor sap driving. The plate read “0 DOWN”. It was a white, shiny, new Ford Explorer (probably an 06′). Here’s what really got me about the caption: Not only did this consumer purchase a brand new vehicle with no money down, but he was proud of it. DUMB! Commercial advertisements and society as a whole embeds the “Buy Now, Pay Later” method into our heads and it works so well that around 90% of all consumers who purchase new cars do not put $5 down on the vehicle before signing the papers. The sad fact is, is that the average new automobile loses $3,000 as soon as it leaves the lot. Technically, you have gone into debt for something that loses value before you even use it. As if this wasn’t depressing enough, the less money you put down on a car and the worse off your credit is, the more you pay for the car. If this isn’t one big sand trap I don’t know what is!
The Role of Your Credit Report
Your online credit report is affected 2 ways when you buy a new car with no money down. First let’s look at the role it plays after you decide you NEED that shiny new sports car. The mass majority of consumers are thinking of one thing when they sit in the ‘sales chair’ to go through the paperwork: driving the car home (man this is bringing back some bad, bad memories). In order to do this you will need to finance the vehicle which requires pulling up your credit history and your credit report. This can easily be done online right in the sales office while you look around to make sure no one else tries to sneak off with your new toy. The worse off your credit report is, the higher interest rate you will pay. (This is fine though as long as you can still afford to buy food every other week and pay a few bills here and there.) The other role that your credit report plays in this game is the after-effect. The average new car buyer’s car payment is 25-30% of their total income. This creates a nice, big road block on your credit report in itself for when you are ready to make another large purchase. Not to mention when you fall behind on even one payment and your credit file takes a hard blow. Try to keep these factors in mind next time the kid in you tries to make a financial decision.
The Solution
Well you’re not going to like the best solution but here it is anyway: PAY FOR THE CAR IN FULL! If you saved the car payment every month in a good money market account; not only would you save time and money, but when you walked into the sales office with piles of hundred dollar bills you would get quite a deal! Okay, so you’re more likely to win the super lotto than do that right? Well here are a few ideas. As long as you practice a few you might get ahead of this nasty game a little bit or at least protect your online credit report. First, consider getting a 2 or 3 year old car. You can still get a shiny one and the previous owner will have taken the major depreciation of the vehicle passing the savings directly to you. Second, if you can, try waiting and searching to find the best deal possible. Trust me, there is more than 1 of those cars in the market. Third, put something down. Anything! For starters you could put down 10 to 15%. This will lower your monthly payment, lower your interest rate and maybe even cut your payoff time down. Lastly, get a bargain. Don’t settle for the asking price by any means. Be patient and keep control of your focus. One definition of maturity is learning to delay pleasure.