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In the COVID economy, is a payday loan ever the answer?

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Payday loans are short-term, high-cost loans that are used by millions of Americans every year — despite steep interest rates that can hit several hundred percent.

Sometimes called cash advances, short-term loans, deferred deposits or credit access, payday loans are available from both storefront lenders and online. People typically borrow $500 or less and must repay the balance within two to four weeks.

These loans are convenient and accessible to people with poor credit, but in return they are extremely costly. That’s why financial experts normally caution against using payday lenders.

But amid the layoffs and tough times stemming from the coronavirus crisis, payday loans may be a more tempting financial option. Here’s the full rundown on them, so you can make an informed decision.

How do payday loans work?

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Payday loans are quick and easy. You can get cash in as little as 15 minutes by applying in person at a storefront location or by the following day if you apply online. The lender will just need to confirm your ID, income and bank account information.

They’ll also require a post-dated check for the amount you’ve borrowed plus a bit more to pay for the service. The check will be dated to the day you get paid at work, normally within a two-week timeframe. Or you might have to provide the lender with authorization to directly withdraw money from your bank account.

The process is simple, but there’s no guarantee that applicants will be approved for the loan. You might be rejected if:

  • You don’t make enough money: Typically, lenders require at least $500 in monthly net income to be considered.
  • You’re active-duty military: Federal law states that the most you can charge military members is an annual percentage rate (APR) of 36%, so many payday lenders avoid them.
  • You have a recent bankruptcy.
  • You haven’t been employed for very long.
  • Your bank account was opened too recently.
  • You have recently bounced checks.

Because payday loans are geared toward people with poor credit, the application process doesn’t involve a credit check and your borrowing record usually isn’t reported to the national credit bureaus. That means taking out or repaying a payday loan probably won’t hurt or help your credit score.

The amount you can borrow on a payday loan is almost always less than $1,000. The exact limit depends on your state — some don’t even allow payday loans — and your financial situation. Where payday loans are permitted, the amount is usually limited to between $300 and $1,000. Your personal limit will be at the lender’s discretion.

What is the cost of a payday loan?

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To get a loan from a storefront lender, you can expect to pay $15 to $30 for every $100 you borrow, according to the Consumer Financial Protection Bureau (CFPB). A fee of $15 equates to an APR of almost 400% for a two-week loan.

And that’s on the low end. Borrowers in Texas, Utah, Nevada and Idaho pay more than 650% interest on a typical payday loan, according to the Center for Responsible Lending. Some online payday lenders charge even higher rates by claiming exemption from state rate caps.

By comparison, APRs on credit cards typically sit between 13% and 25%.

The astronomical interest rates are being charged to the people who can least afford it, making payday loans easy to get into but difficult to get out of. People who desperately need $500 now will probably find it difficult to repay $575 two weeks later.

In some states, people struggling with their payments are allowed to renew or roll over their loan into a new one, but that leads to higher and higher fees — creating a kind of debt spiral for people of limited means. The CFPB says 80% of payday loans get rolled over or reborrowed within 30 days.

If the loan isn’t repaid on time, the lender will try to withdraw money directly from your bank account. If you don’t have enough money in your account, each failed attempt may trigger additional bank fees for you.

But payday lenders won’t stop there. Be prepared for relentless calls (to you and your family) and letters from lawyers. They might even outsource your debt to an even more tenacious debt collector.

Why do people still take out payday loans?

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Even with such poor terms, payday loans remain popular: 12 million Americans use them every year (while spending $9 billion on fees).

People with bad credit and no savings are natural customers for payday lenders. According to a 2020 survey from the First National Bank of Omaha, nearly half of U.S. adults say they expect to be living paycheck-to-paycheck in 2020. And 53% say they don’t have an emergency fund that could cover three months of expenses.

That was before COVID-19 lockdowns led to some of the worst unemployment the U.S. has ever seen.

Low-wage workers can often manage daily expenses, but if an emergency hits — like a medical bill or car trouble — they need money fast.

Borrowers who’ve been thrown out of financial equilibrium and need instant access to cash often have bigger things to worry about than the loans’ high price tags. But payday loans rarely work out well for consumers — and there are plenty of options.

Alternatives to payday loans

Consumers with sufficient credit can turn to credit cards or, better yet, take out a personal loan.

Personal loan rates often start as low as 6% APR and can range up to 36%. In most cases, you’ll have two to five years to pay it back in monthly installments at a fixed, simple interest rate. Payments will be the same every month for the life of the loan.

You should exhaust every other opportunity before taking out a payday loan, including:

  • Borrowing from friends and family.
  • Asking your employer to advance your paycheck.
  • Selling things you don’t desperately need.
  • Taking up a side hustle to earn extra cash.

Build your credit and savings

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If you’ve ever used a payday loan, you’re likely trying hard to avoid them in the future.

The key is improving your credit score, which will allow you to access loans with better interest rates. The best way to do that is to pay down as much debt as possible and establish a record of prompt payment.

Borrowers who have already racked up debt from multiple sources will want to look into a consolidation loan. By taking out a single, low-interest personal loan, you can pay off all of your high-interest debt at once, saving you money and helping you free yourself much quicker.

If you have bad credit or no credit, you might need to start off by getting a secured credit card or a credit builder loan. These unusual products help people establish a history of responsible borrowing and raise their credit scores so they can get normal credit cards and loans.

Finally, you’ll want to get to work building your emergency fund so won’t have to borrow money in a pinch. Try to identify ways to cut your expenses and stash your excess money in a high-yield savings account, which will help your money grow while you aren’t using it.

Once your finances are back on solid ground, you can put payday loans behind you for good.

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New program to help Black-owned online businesses | Technology

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ATLANTA _ Many Black entrepreneurs struggle to get bank loans and professional help to launch new businesses. A new program aims to remove those stumbling blocks.

An Atlanta nonprofit and another business have committed $150 million to the 1 Million Black Businesses effort, which will make loans and provide financial and business advice to Black-owned startups and established small businesses. Atlanta-based nonprofit Operation Hope, which helps consumers improve credit scores, is kicking in $20 million, and Shopify, the online e-commerce is adding another $130 million for the loans and website-hosting services.

Other services firms providing expertise or help include Aprio, an Atlanta-based accounting firm, and First Horizon Bank.

It’s a package of products that many Black entrepreneurs couldn’t get through a bank or credit union, said John Hope Bryant, CEO of Operation Hope.

“A bank won’t lend you money unless you can prove that you don’t need it,” Bryant said. “That’s especially true with minority-owned small businesses.”

Small businesses with Black owners were half as likely to obtain business loans as whites, according to a Federal Reserve survey published earlier this year.

The initiative is the latest effort to help Black consumers and businesses enter the financial mainstream. Earlier this month, a group that includes rapper Killer Mike opened a digital bank aimed at Black and Latino consumers.

Banks and credit unions have tried for years to help Black consumers open checking and savings accounts. The efforts helped, as the number of U.S. households without bank accounts fell to 5.4% in 2019 from 6.5% in 2017, the Federal Deposit Insurance Corp. said Monday.

Consumers who own checking and savings accounts typically have access loans with better rates and a wider variety of financial services.

The federal government’s $660 billion loan initiative for businesses hit by COVID-19, the Paycheck Protection Program, also helped few Black-owned businesses, Bryant said. PPP loans were based on a company’s number of employees and its rent obligations. many Black-owned small businesses typically didn’t have enough workers to qualify and are based out of the owner’s residence.

Bryant said a bad credit history may not prevent applicants from receiving a loan.

He hopes more companies will contribute services such as insurance advice or software typically available only to well-established businesses.

Bryant noted that 1MBB is not a charitable organization, as participating companies like Shopify will likely get a pipeline of new business customers through the program.

“This is not pure philanthropy,” he said. “Shopify believes that Black-owned businesses are good businesses if they’re properly supported.”

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This Week’s Top Car Deals & Analysis – October 30, 2020

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The final days of October offer a chance to take advantage of outstanding model year-end deals. Most offers end November 2, which means there isn’t much time left to enjoy this month’s best lease deals and deepest new car discounts. We even found incentives that can help those with bad credit buy a new or used car.

2021 car deals. Interestingly, 2021 new car incentives are showing some surprises. For example, Audi is already offering up to $12,000 in savings when leasing the 2021 e-tron all-electric crossover. We even learned that the new Genesis GV80 SUV will debut with a $589/month lease deal plus special financing rates.

Believe it or not, the 2021 Hyundai Veloster N could prove to be a great value despite a nearly $4,700 price increase compared to the previous year. That’s because our analysis finds that better incentives can make it just $10/month more expensive to lease than the 2020 model. Talk about getting more for your money.

Why are small cars bad to lease? Even though smaller cars typically come with lower price tags, that isn’t always the case when leasing. A mix of lower discounts, worse residual values, and smaller discounts can actually make a Nissan Altima cheaper than a Versa despite having an almost $10,000 difference in MSRP.

Shorter-mileage leases. More brands are offering shorter mileage allowances on car leases. Although this is typically used to offer consumers more flexibility, we’ve found cases in which you can end up getting less for your money. If you don’t read all the fine print, this could make comparison-shopping difficult.

Bad credit car deals. If you have subprime credit, you may find it harder to get financed. However, some manufacturers are offering special incentives to help make cars & trucks more affordable. For example, Chevy is offering $2,000 in down payment assistance plus 9.9% APR for 72 months on the 2020 Trax.

$0 down leases. If you’re adamant about now putting down any money on a lease, you’ll love Sign & Drive leases. In addition to requiring no money down, $0 down lease deals can cover your first month’s payment. Even hot sellers like the Honda CR-V Hybrid offer $0 down and as little as $330/month on a lease.

The high cost of safety? Even though most major automakers are offering more safety features than ever before, our analysis finds that the highest IIHS safety ratings still require costly options in 2020. That’s starting to change, but the cost of buying a car with the most bragging rights is still very high.

Disaster relief. Those affected by some of this year’s natural disasters should be aware that automakers are offering assistance. California wildfire assistance programs like Ford Employee Pricing can save thousands when replacing a car. Similarly, a 2020 hurricane relief program from GM offers $1,000 in savings.

Spooky loan situations. There are some scary scenarios you can avoid when getting a car loan. However, boosting your credit score is possible with some determination because negative items on your credit report fall off after 7 years. Our network of dealers is specially equipped to help those with bad credit.

Upcoming vehicles. Genesis finally revealed the new GV70, a small luxury crossover based on the highly-rated G70 sedan. Whether it’s a redesigned car, truck, or SUV, odds are you’ll find it on our Previews page. That said, as we reported last week, discounts ahead of a redesign can result in substantial savings.

This Month’s Cheapest Lease Deals »



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Why bad credit doesn’t have to be a life sentence

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JACKSONVILLE, Fla. – No matter if they’re bad or good, credit scores affect everyone’s lives.

Still, for many people, by the time they’ve learned the importance of having good credit, it may be too late.

“If you’ve had late payments, it would take 24 months of on-time payments to rectify the situation,” Jax Federal Credit Union Interim President Mary Svoboda said.

Svoboda said paying someone who claims they can fix your credit quickly is a waste of money.

“It can cost you several hundred dollars, and you can do it yourself,” she said.

Svoboda says those quick-fix businesses check your credit report for discrepancies and then dispute them. She explains how you can do it on your own instead.

“Check your credit report,” she said. “If there is something, it’s very easy to dispute it directly with the lender or through the online process with the credit bureaus. So you don’t need to pay for that.”

If there is any silver lining from the coronavirus pandemic, it is that all three major credit bureaus — Experian, Equifax, and Transunion — allow anyone to check their credit every week without any penalties. Before, you could only do that three times a year.

Svoboda added that Experian now offers a credit boosting service that is free and can help boost your score.

“The credit report would be linked up to your bank account and through your bank account they could see you have regular deposits and you pay your utility bill and your mobile bill on time, things like that,” she said.

Svoboda said some of the most common pitfalls she sees when it comes to credit is people have too many credit cards. She said that should be avoided when you start building credit.

“Sometimes it’s horrible, you see people that have 20 or 30 credit cards, so that is not a good idea,” she said.

That should all be avoided when you start building credit.

If you want to build credit but need some help living within your means, Svoboda recommends getting what’s called a secured credit card. It’s like a debit card in that you can only spend what’s in your account. But unlike a debit card, a secured credit card builds credit.

What if you’re taking steps to fix your credit but can’t wait and need a loan now?

“Right now, what I would encourage someone to do is if you don’t really have any credit, bring me your bank statements and show me, ‘Look at this. I have made a $600 rent payment for the first of the month for a year.’ I’ll say, ‘Let’s do this loan,’” Svoboda said.

While you’re rebuilding your credit score, Svoboda says you should care about it, make it important, and check it. Because a bad credit score doesn’t have to be a life sentence.

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Copyright 2020 by WJXT News4Jax – All rights reserved.

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