Over the last several years, many states have passed laws restricting the payday loan business. Many of these laws aim to put a cap on how much lenders can charge customers for a loan. It is easy to see how they got a bad reputation, but are guaranteed payday loans from a direct lender worth the cost?
Payday Loans Are High APR!
While it is true that payday loans have an extremely high APR, often between 300% and 400%, but this is not an accurate representation of what you pay. Payday loans are meant to be repaid in two to four weeks on average. The interest rate is usually a fixed amount of around $15 per $100 loaned.
If you were to extend a payday loan for a year then yes, you would pay several times the loan amount in interest. Many states have implemented protections here as well. For example, in Alabama, a lender cannot extend a payday loan beyond 31 days. This is to ensure that no one ends up with a payday loan that you can never repay.
When you ignore the APR, you can look at the fee schedule itself. This varies but is usually between $15 and $25 per $100 borrowed. So, if you need a loan for $300, you would then pay back $345 when you get your next paycheck. While this is not cheap, it is a reasonable price for the services you are receiving.
What Happens If I Can’t Pay?
This depends on your lender, but there are a few things that you should expect if you fail to pay off your loan. First, most guaranteed payday loans from a direct lender require that you either authorize a charge when it is time to repay the loan or that you leave a signed check that the lender can use to withdraw the amount that you owe.
If you do not pay back your loan and the lender is not able to use your check or electronic withdrawal due to a lack of funds, that does not mean that you are off the hook for the loan. In addition to the overcharge fees from your bank, you are now likely to face collection calls and additional charges from the lender.
If you still do not pay back the loan, then it can go on your credit report, and the lender can send it to a debt collector. If the debt collector is unable to collect, they have the option of taking you to court and garnishing your wages if they win. Do not discount this possibility just because it is a small loan. Payday loans center around people with poor credit, so they are much more likely to take you to court than a credit card company.
Can I Settle a Guaranteed Payday Loan With a Direct Lender?
This mainly depends on the lender or debt collector that you are working with. Some companies are willing to work with you to reduce the amount owed to get their money. Others are more than happy to take you to court, since if you lose you have to pay the legal fees as well.
Try to work something out with the lender before the loan is sent to a debt collector if you cannot pay your loan. The lender is going to sell your debt, most likely for pennies on the dollar, so they would much rather make a deal with you than sell out.
Guaranteed payday loans from a direct lender are not as bad as some people make them seem, but you do need to be careful. If you pay the loan back in the original timeframe, these services are excellent for people who need quick cash. If you do not, however, expect to pay high fees.