Interest rates of 400% (that’s four, zero, ZERO) will be a thing of the past for servicemembers and their spouses once a government-imposed cap on payday lenders is instituted.
Have you or someone you know taken a payday loan company up on its offer?
What can these "convenient" cash quickies cost?
According to some estimates:
Payday lenders offer short-term loans against borrowers’paychecks and charge fees. Borrowers who cannot repay the loan by the next payday often"roll over"the loan repeatedly, leading to more charges.
The average annual percentage rate for payday loans is about 390 percent. As lending fees pile up, borrowers can end up paying an annual percentage rate of 800 percent or more.
Aside from the financial crises these types of loans and the interest rates could cause, the legislature pointed out military personnel were adversely affected in other ways. Many have lost their security clearance thanks to the negative credit. Others have been unable to deploy or distracted from their missions if deployed while those in charge of their finances struggle to figure out what to do. Some estimates calculate one in five service members are payday borrowers.
The interest rate would cap at 36% under this provision. Still not a stellar rate, but compare it to 800% and it seems darn good! Additionally, I am sure there are some for whom a payday loan was a stop gap measure and a lifesaver when used that one time. It appears just as likely from my reading, however, that these types of loans have equaled financial disaster for some who chose to take them.
How does one recover from the adverse effects a loan like this could have on their credit if they fall behind? What advice do you have to help others avoid using a service that could harm their credit?
We’d love to hear your stories, advice or tips in comments!
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My husband and I are guilty of using payday loan places to help us occasionally. The first time was actually to help with a vehicle problem we had. The Navy Marine Corps Relief society was not able to help us and unfortunetally we had to go about this the other way. It took us 4 months to finally catch up on everything. Every payday we had to get another one to make up for what we had borrowed for the one time emergency. I think the only reason we were able to catch up was because we got his clothing allotment in and it gave us that extra ammount that we needed to get caught up. I would not recommend using them to anyone. And if you do make sure you have the money in your budget to pay it off the next payday and not have to worry abou it for months at a time. Since then my husband and I have gotten our finances straigtened out and we are able to help out our friends in an emergency and we don’t charge them interest. We have saved several single members as well as couples from making out disaterous mistake.
To anyone out there thinking about using payday loans I would say anazyze your situation and if you can hold off until payday on whatever it is your looking to fix or buy do it. Or even ask friends and family for some help more often than not their is someone willing to help you out when you are in a bind and as long as you pay them back in a reasonable amount of time they won’t be banging down your door with a 400% interest rate.
This is unfortunately a really important issue!
The Pentagon Federal Credit Union is trying out a new “payday loan alternative.” There is some info and a link on this post I wrote a little while back: http://www.spousebuzz.com/blog/2006/09/financial_night.html
I would also like to recommend checking with ACS (or your equivalent); ours has classes about credit repair and getting out of debt.
Deanna–that is so kind of you! Just make sure you always have the loan you make in writing and get the “contract” notarized.
When we were stationed at Ft Carson, it had become an epidemic. It had gotten so bad that the pay-day loans places outnumbered the tattoo shops and pawn shops. I think there the root cause was that the housing and rental market out-stripped the soldiers' pay & BAH. I would bet it's not much better with the exchange of the 4th ID for the 3rd ACR. Although the housing markets nationally are supposed to bottom out and level off, I would bet that Colorado Springs's won't change much. That exchange of units will mean an additional 4000 or so soldiers (and their families) added to the population of that town. I doubt the pay-day loan places are hurting for business.
The payday lenders are a terrible problem here in Southern California, especially up near Camp Pendleton. There's been a recent push to educate Marines about them, though. For example, the local baseball announcer is a former naval aviator colonel, so he's making public service announcements as "Colonel Coleman," warning people about payday lenders and telling them where to go if they need financial advice/help.
It seems to be a particular problem for the youngest Marines–suddenly they have more money than they've ever seen and they spend it all on everything they've dreamed of. And then they don't have the saavy/knowledge to realize what the lenders are gonna do to them.
For example, the other day at the USO a Marine showed up without the $25 needed for the discount shuttle back to base. Payday was four days ago and he'd already run out of money.
He wanted the shuttle driver to stop at one of the lenders so he could pay the driver. The USO director is an old command master chief (SEAL), so he hauled the kid into his office for a fatherly chat before supplying him with the fare (which he expected to be repaid for as part of the kid's newfound financial responsibility).
There's a new financial education system the Marine Corps is instituting, but I have no idea how it's being received or how effective it is. But they're very serious about it.
Speaking of "new Marines"…we'll have an official one in my family next weekend. :) Guess I will pull him aside when I have the chance to see him & explain to him that they aren't joking around about the seriousness of this issue.
My husband and I are also guilty of falling into the payday loan scams. They give the immeidate help you need but if you are not really careful it is a never ending cycle. The only way my husband and I were able to break the continues cycle we had to take a big hit on one paycheck and catch them up completly and for good. If we can help we will never use those again! Ours was never behind so it never hurt our credit negativly but keeping ourselves from getting behind took us longer to get it paid off. my only advice would be to never do it unless you have absolutly no other chance to get the money you need….they are a death trap to most people!!
The hard part about living here in southern California is the cost of living is so high. A single marine here gets paid the same as a single marine in North Carolina and it is a really big difference. I really hope the new education system works becuase I know my husband and I made some mistakes on the old system.
I guess I am a little confused as to why military families feel the need to use payday loans. Even if it is an emergency, you should have savings set aside. According to a financial advisor, your savings account should be approximately 3 months of your income. For things other than emergencies, why overspend yourself? If you find that you are having a difficult time with money, get a job. I hate hearing military families complain about how they have no money. My husband is an E-5 and I have a job. It amazes me when other military families come into our house and are like, “Oh wow! Look at your tv. How do you afford this stuff?” Because we save!
Payday Loan, the interest rates are being CAPPED, not increased. If used one time as a stop gap between a bill being paid, or not, it may be a lifesaver (as noted above). However, for those ending up with a 400% interest rate, it’s hardly a bargain and is harmful by anyone’s measure.