Understanding a Payday Loan
A payday loan is an extremely short-term loan that is secured against your next month’s pay check. It is a form of cash advance. To be eligible for a payday loan you need to present employment records and previous salary slips. They usually charge very high interest rates and some states have a cap on the maximum Annual Percentage Rate that a payday loan lender can charge.
Role of the Obama Administration in Regulating Payday Loans
The interest rates on payday loans before the Obama administration had been going through the roof. There was a serious need of controlling the payday loan interest rate that was reaching gigantic proportions.
The latest changes for payday loans made by the Obama administration are making them more affordable now than they were ever before. The first change has been a maximum limit that was imposed on total amount that can be offered in the form of payday loans to the public. The second change is that the lender has to offer an installment facility if the borrower asks for it. The third change is a set of regulatory laws set for controlling the payday loan lenders.
This is going to have two implications. First of all, lenders can no longer just keep on lending payday loans on any interest rate they want. They will now only have a select amount that they can give out as payday loans. That means that it won’t be easy to secure a payday loan. Lenders will be identifying the best borrowers to invest their money in. Secondly, there will be competition in the lending market to offer the best deals in order to attract the right borrowers.
The advantage of Obama’s crackdown of illegal practices by many payday loan lenders will be felt by the whole industry that was plagued by many lenders who were charging up to 4000% from their clients. Now there is an annual interest rate cap at 36%. The ones with shady business practices had to obviously back out of the industry. Now the APR is the only basis of determining the rate of interest for all borrowers.
In many states payday loans are now illegal. Where they are not, strict regulations have been set up to ensure that illegal lenders are severely punished.
Effect on the Borrower
All these regulations make it safer for the borrower not to fall in any interest rate trap. You will find many payday loan lenders online. Going online is actually the best option because you will be able to choose from lots of payday loan lenders. This will enable you to identify which service providers are legitimate and which ones are not.
There are various comparison sites that will do a quick comparison of interest rates and repayment options for you. Helping you pick the most affordable deal from the lot. Doing a comparison is easy and if you have any queries you can read through the payday loans FAQ section to understand how the interest rate is calculated and the repayment options work.
Through online payday loans you can get fast cash, all you need is your financial statements and past pay slips at hand to provide proof that you will be able to repay the loan. They also often offer better rates than the regular payday loan lenders.
Payday loans FAQs and regulations are also present on state and federal government websites. It is a good practice to read through them before taking a payday loan from any service provider. Reading through these sites is also the best option because they will contain authentic information.
After that if you need further satisfaction you can check online forums and blogs to get firsthand reviews from people who have taken out loans from the service providers that you are considering. This will also help you understand the implication of the payday loans and their regulations, by reading through other people’s experiences.
You may have reduced chances of securing a payday loan, but it surely has become more affordable. And with the installment feature, it makes it easier to overcome financial crises if it falls upon you. However, to take advantage of these regulations you need to understand them thoroughly. Financial experts will always tell you that you should never get into a financial deal, especially a loan without first reading and understanding its terms and conditions. The last thing you want is to fall into a payday loan trap.