Studies show that 12 million Americans apply for payday loans each year and pay approximately $9 billion as interest. The payday loans are usually for not more than $500 and don’t need credit score check for approval.
Usually, repayment is due in a couple of weeks with an average APR of 391%. You need a stable paycheck and bank account to qualify. The lenders deposit the loan amount in your bank account. They ask for a post-dated check to withdraw the loan and interest directly.
More than 80% of online payday loans get renewed or roll over the next month as per CFPB [Consumer Financial Protection Bureau]. The borrowers end up paying significant bank penalties because of the repeated attempt to debit their savings account. Therefore a new tough rule is laid by the deferral regulators and got introduced in 2019.
The borrowers get protection as well as it will suppress them from gaining loans. Paycheck to paycheck living is challenging for millions and they can end in financial catastrophe seeking loans. The payday rule even applies to online lenders.
What changes are made for payday loan borrowers?
- Lenders will scrutinize your repaying ability – Is single payment possible or have two subsequent installments, where the principal is paid down steadily. This helps to pay the debt by reducing the principal amount first.
- Check credit reports – Lenders, who don’t offer the principal-reduction option must check your credit history to see if there are any debt obligations.
- Verify income – Is your income sufficient to live and cover debts will be checked based on your bank statement, paychecks, or other income proofs?
- Only 3 back-to-back loans can be approved – A mandatory one-month cooling-off time is needed after you got three loans. Until this passes, lenders cannot approve another payday loan.
- Checking account must be debited twice only – Lenders have no right to debit your account the third time. They need your approval for loan repayment. Thus multiple penalties get saved due to insufficient funds.
