Payday Loan Rollover How Short-Term Loans Guaranteed Approval
Dangerous trap - loans before pay and their extension
Four out of five citizens taking payday loans are constantly renewing the maximum terms - in the end they pay much more and more than they expected and then they could afford. How does this happen? All this is due to the prolongation service, which is fraught with even more problems than the original loan itself.
Why do many citizens still turn to such creditors?
People who turn to quick loans before payday, for the most part, have a badcredit history and the corresponding rating is less than 630 by FICO.
Do not know what a credit rating is? This term will be explained to us by the manager of education and development of American consumer credit counseling Katie Ross. "Credit rating is the information contained in the credit report. Usually it includes all the loans, payments history and timeliness, as well as the current status of the citizen. All this is stored under one individual number. Your credit history is an effective instrument of creditors, which allows you to evaluate your solvency and ability to pay for the product. "
With low indicators in the rating it becomes immediately clear that the citizen had a bad experience of closing financial products from traditional institutions. In this case, higher interest is assigned if the loan is given at all.
Such interest rates are a protection against multiple risks with people whose credit history leaves much to be desired.
About the loan product in question
In fact, this is a short-term form of lending with high interest rates - an ideal way for someone with a bad credit history and the appropriate rating to get the necessary cash quickly. In reality, many loans to pay lead to the fact that the client has to renew them again and again. They fall into a vicious debt circle, which can last for years.
How does the dangerous trick work?
When a person cannot afford to pay the amount taken on time, at the appointed time, then many credit institutions give them the opportunity to extend the term. Basically, this implies prolongation for an additional fee (to be more precise, additional interest).
The most common form of extending your debt involves a certain interest rate due on the loan. Thus, for two weeks of using money at a rate of three hundred dollars from 15% prolongation of the loan will mean payment to the creditor of forty five dollars due in the form of interest. And this is to get another two weeks for a full repayment.
But what to do with this additional payment? Okay, the lender charges an extra 15% from the borrower for a new, extended term. And just in one fell swoop, the cost of borrowing for a taken amount rises from 15% to 30%. Double increase!
And if the borrower still cannot repay his loan after a new extended period of time, the company can re-conduct the same procedure. This is an additional forty-five US dollars, as well as an additional 15 percent interest. The cost of borrowing now increases to 45 percent, while the borrower has not yet approached the repayment of the original three hundred US dollars.
This becomes a real problem for those who decided to take a short-term loan before the salary. It turns out, that the client more and more gets in a duty, without possibility to pay it. Short term of the loan - this is the trap, getting into that, a person can pay for years.
The main attraction of these products is an affordable service that can save you at a given, urgent moment and solve a difficult financial situation. But this extension should alert us, save us from a fatal mistake. Most borrowers fall into this trap without even realizing the full danger.
According to the latest research, eighty percent of all short-term loans are the result of an extension of the terms. There is a natural question: will the credit industry of similar products remain, if its customers cannot afford to repay the amount taken the first time?
Probably not. Another recent study leads to alarming data, an average customer of such a loan gets up to ten borrowings of money a year and spends nearly two hundred days on paying off the debt. See for yourself which loans are in fact short-term, if you need to spend almost a year and sometimes more on their repayment.
The whole system is specially constructed for a person to apply for an extension. Companies give loans of a larger amount than a citizen can afford. For example, according to experience, an American with an average income can afford to borrow about one hundred dollars to give them at the appointed time with interest. And the average amount that such creditors give out is at least four hundred and thirty dollars. That is why the debt becomes unpaid, and the person gets into the debt hole. Thoroughly consider how much you can give, and then nothing terrible will happen.