How to Choose a Payday Loan Company

According to established consumer advocates and other sources, many Americans are taking advantage of a type of riskier loan called a payday loan to get small amounts of credit advanced for a short period of time. Financial experts who are involved in various kinds of economic oversight have identified some special risks for payday loans and similar lending practices. There are risks for the lender, as well as significant risks for the borrower. Learning how to choose a payday loan company can help those who need short-term credit to avoid some of the biggest risks involved in this kind of lending.


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    Understand the payday loan market. Having a better understanding of the economic context for payday loan companies will help potential borrowers to make better decisions.
    • Read up on government and consumer advocate studies on payday loans. The FDIC, the government arm that insures depositor money in commercial banks, has offered consumers an assessment of the payday loan industry in general, which it calls a "high risk subset of sub prime lending." This kind of language helps to alert borrowers that payday loans in general are not a fairly stable type of lending practice.
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    Choose lenders that are tied to larger institutions. Lenders that diversify in different types of loans may be a bit more credible than other small, fly-by-night companies.
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    Look critically at interest rates and terms for a payday loan company offer. The biggest source of risk with payday loans comes in the form of extremely high interest rates attached to a rollover. Read the agreement carefully before signing to identify any dangers associated with deferred loan payment.
    • Calculate how much you could owe on any unpaid portion of your payday loan. To get an idea of how excessive rollover debt can be, take a simple debt calculator and enter any potentially unpaid portion of the loan, along with the applicable interest rate, and you will see how many borrowers who elect payday loans get trapped in a continual debt cycle.
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    Look for lenders that can control their own risks. As mentioned previously, payday loans can also be risky for the lender. Lenders that don't keep an eye on their risks are more likely to gouge any paying customers for extremely high interest rates to recoup their previous losses.
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    Find lenders that are up front about loan requirements. The best payday loan company will correctly inform borrowers at the outset and help them to understand that it's in their best interests to pay off their payday loans promptly.
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    Ask lenders about the actual loan value attached to a payday loan. In payday loans and other similar car title loans, companies may not be up front about how much they will be willing to extend to the borrower. Payday loan companies often choose a percentage of the paycheck value, not the total value, in calculating how much they will loan to a customer.

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Categories: Mortgages and Loans