Know Your Rights Regarding Payday Loans | Oak Park Financial

What is a “Payday Loan?”

Payday loans are a quick high-cost, high-cost process in which customers borrow money to pay a service charge. The borrower writes an individual cheque to the lending institution for the sum he borrowed plus the service charge. The lender provides the customer with the amount he or she has borrowed and then holds the check for the customer (usually until the next payday) before sending the check to the bank that the customer has used to pay. They may be advertised as payday loans or cash advance loans.
Law considers this kind of loan “deferred presentment service transaction,” due to the fact that the check remains in the account for an extended certain amount duration (deferred) prior to being cashed (presented to pay).

Payday Loan Disadvantages

Payday loans are expensive because of their service charges and a brief period of repayment. For instance, a borrower who takes out a loan of $100 over two weeks, and receives a charge of $15 (the maximum amount for the loan amount), will pay a fee equivalent to an annual percentage rate of triple-digits (APR). The cost of the loan for two weeks of $15 is an APR of 391 percent which doesn’t include additional charges for determining your eligibility.

And, even more importantly, payday loans can create an opportunity for those who are cash-strapped and can’t pay back the loan and then takes out another payday loan to repay the original. It’s an unforgiving slope. When a customer isn’t able to pay back the cash advance, the client decides to take out a second, and so on. The rollover process adds charges for service and leaves the customer in a perpetual state of debt.

What does a payday lender know when a customer has outstanding payday loans?

The State has an online database that payday loan lenders have to verify before granting another loan. If a customer already has two unpaid payday loans, the payday lender can’t issue another.

If the database’s electronic version is not available, then customers must make a declaration stating that they do not have a payday loan outstanding with the payday lender currently in use and that the client has not more than two unpaid payday loans with other payday lenders in the State.

Are there alternatives for payday loans?

Other options that are less costly in comparison to payday loans could include:

  • A loan of a modest amount from a parent or friend
  • A credit of a very small sum from an establishment such as an institution like a credit union, or credit union
  • Inquiring for you to pay your employee in advance.
  • Ask the creditor for an additional amount of time to pay your charge.

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