HOW TO FIND A REPUTABLE PAYDAY LOAN CONSOLIDATION COMPANY

There are three common types of debt consolidation:  debt consolidation companies, debt management companies, and debt settlement companies.

Types of debt consolidation

Types of debt consolidation

A debt consolidation company purchases all of a consumer’s debt and the consumer then makes one payment to the company.  The benefit of this is that it sometimes lowers the consumer’s interest rate and combines multiple payments into a single payment.

A debt management company is a third party that attempts to negotiate lower interest rates and payments on a consumer’s current debts. A debt settlement company is a third party that attempts to negotiate lower principal balances on a consumer’s current debts.

Although each of the companies provides very different services they are often confused or jumbled together.  When conducting an internet search for debt consolidation companies there are limited resources that are produced that exclude debt management and settlement companies because they tend to be more risky and often have a negative effect on consumer finances.  Debt consolidation is not without risk but with a consumer’s total debt being purchased and all debts combined into one affordable monthly payment the risk is lower than with other services.

There are methods in which consumers can consolidate their own debts without involvement from a consolidation company but it does require a credit score of 660 or higher anything lower will require the services of a reputable debt consolidation company.

Tips for Finding a Reputable Debt Consolidation Company

 

Tips for Finding a Reputable Debt Consolidation Company

Tips for Finding a Reputable Debt Consolidation Company

  1. Check with the Better Business Bureau.  By checking with The Better Business Bureau consumers may find a lot of companies that are not rated probably because of limited to no available information.However, consumers will be able to see what companies are accredited with the Better Business Bureau, what complaints have been filed against various companies with the Better Business Bureau, and any legal actions that have been taken against various companies.
  2. Check to see what companies are registered with The Association of Independent Consumer Credit Counseling Agencies or The National Foundation of Credit Counseling.
    Reputable companies will make their reputation and customer service a priority and will be associated with some type of governing body.Consumers checking with these two agencies will be able to see what companies are registered as well as any positive or negative feedback associated with the companies.
  3. Consider services through a nonprofit agency.  Just because a company claims to be nonprofit does not automatically make it reputable.  A true nonprofit company will have a 501(c) (3) certificate.  Although nonprofit companies are less expensive they still have to charge for their services in order to stay in business.

Avoiding Scams

 

Avoiding Scams

Avoiding Scams

Although, there is no certain way to determine the legitimacy of a company there are signs that consumers can look for:

  1.  They are selling things other than debt consolidation.  These companies will market themselves as debt consolidation services but once the consumer is in their office they present other services such lowering the total amounts that are owed and working out deals with lenders.  True debt consolidation companies do not negotiate with current lenders they simply transfer a consumer’s debt to a new loan with different terms.
  2.  They are aggressive or pushy.  Anytime a consumer is encouraged to make a rash decision the consumer should have concerns because it is very likely that the company is more interested in profits than what is in the best interest of the consumer.
  3. The company markets a quick fix.  Any company that markets their services as a painless and quick process is simply dishonest because getting out of debt is never quick nor is it without some type of sacrifice.
  4. They make the consumer feel uncomfortable. Consumers considering debt consolidation needs to be comfortable with the companies they have chose because once the agreement is signed it is binding.  A good company will listen to their consumers, be honest with their consumers, maintain the consumer’s best interest, and will educate their consumers on making better financial choices in the future.

How to determine if debt consolidation is the right choice

 

How to determine if debt consolidation is the right choice

How to determine if debt consolidation is the right choice

Despite whether a consumer chooses a for-profit or a nonprofit agency there will be applicable fees because neither agency will lend money for free.  However, reputable companies will be honest about their fees, interest rates, and terms.

  • Fees: a reputable debt consolidation company will be upfront about their fees.  Some charge fees upfront while others simply make money off of the interest paid by the consumer.
  • Interest Rates: most reputable debt consolidation companies will offer lower interest rates than the consumer was paying but it can vary by company.
  • Terms: a reputable debt consolidation company will be upfront about the terms they offer consumers by disclosing interest rates, the length of the services provided, and will disclose if the consumer is going to be paying more in fees and such than simply attempting to take care of the issues personally.

Prior to making such a large decision consumers should weigh the positives and negatives of debt consolidation to determine if it is an answer to a problem or if it will create a bigger problem. This option should only be considered if it is truly a means to an end. If the consumer is going to continue being in debt after the consolidation has ended this is not an option to consider.

Locating a reputable debt consolidation company is possible but at the same time it is difficult because there are many more disreputable companies than reputable ones. It is more important for consumers to do their homework and make a good decision than to make a hasty decision that is regretted later.

HOW CAN PAYDAY LOANS BE IMPROVED?

In this day and age most people live paycheck to paycheck and have to become pretty creative when it comes to stretching their incomes and saving for emergencies and retirement.  For some people payday loans are as necessary as public assistance is to the poor in order to make it through each pay cycle and they have no other alternative to keep their heads above their needs and finances.

While payday loans do have their benefits for those who depend on them they also have their disadvantages for those same people.  Payday loans often have high-interest rates, high fees, lender favored contracts, and sketchy collection practices.  All of the disadvantages have the potential for improvement.  

The first area for potential improvement is the interest rates that are charged.

The first area for potential improvement is the interest rates that are charged.

The first area for potential improvement is the interest rates that are charged.  The interest rates charged by payday lenders are often pretty high.  In fact, in some instances they are as high as 400%.

If payday lenders were to lower their rates to where they were only slightly higher than those of banks it would not only benefit their consumers but it would also benefit them by attracting a more diverse group of borrowers.

A reduction in interest rates would affect the profits received by lenders but at the same time it would open new doors for the lenders by widening their potential customer base.

When a potential borrower does an internet search for payday lenders more negative information is available than positive, which is a deterrent for most people needing to borrow money.  However, if the financial terms were updated and changed to be more borrower friendly there is likelihood that more potential borrowers would consider a payday loan more often than just as their last option.

Fees associated with payday loan

Fees associated with payday loan

The second area for potential improvement is the fees associated with taking out a payday loan.  If lenders were to have set loan fees it would better enable customers to determine the cost for them to borrow money and could help them in their selection of a financial institution.

Potential borrowers that are on the fence about payday loans are naturally going to be more skeptical and conservative in their decisions regarding lenders than established borrowers.

Although it is nice for lenders to have return customers at some point these customers are going to have a change in circumstance that either eliminates the need for a payday loan or the borrower’s eligibility for a payday loan.  Therefore, an essential part of a lender staying in business is to bring in new borrowers.  One way that this can be done is by creating a customer loyalty program.

Many lenders already have a referral program in which established customers can receive a discount or free transaction when a new customer is referred and takes out a new loan.  In order to take this program one notch higher lenders could reduce fees and interest rates for loyal customers who have a good payment history with them.

Traditional lending institutions have had these types of incentives in place for years so it’s time that payday lenders educate themselves to the tactics and techniques of traditional lenders and utilize some of the same measures they use to draw in new borrowers.

lender favored contracts.

lender favored contracts.

The third area for potential improvement is lender favored contracts. Payday loan contracts almost always favor the lenders.  The repayment terms for payday loans are often predetermined and pre-set by the lenders with very little input from the borrowers.  Most if not all payday lenders have a one size fit all type of contract meaning that they use the same contract for every customer.

Regardless of whether or not the customer is a new or return customer or the customer’s payment history payday loan contracts don’t vary between good and bad customers. In relation to contracts are the collateral practices of lenders.

The majority of lenders require borrowers to present the lender with either a post-dated check or bank account information in which payment is withdrawn from the borrower’s account on a date chosen by the lender.  Improvements can be made in this area as well by possibly allowing borrowers to choose their own repayment dates or giving borrowers a grace period to repay their loans prior to drafting the borrower’s accounts.  Another possibility would be to allow borrowers to use another form of collateral such as a title, some type of electronic, jewelry, etc.

The fourth area is collection practices.

The fourth area is collection practices.

The fourth area for potential improvement is collection practices. Many lenders are not clear about their collection practices prior to borrowers signing their loan agreements so they are confused when lenders begin collection procedures.

It’s not uncommon for some payday lenders to use tactics such as calling borrowers employers and family members and threatening to have defaulted borrowers arrested.

Although these tactics are not used by all lenders they’re not unheard of. An improvement can be made in this area by making borrowers aware of collection practices prior to signing the contract.

Payday lenders are hero’s to a lot of people who are faced with financial crisis. Although these services are helpful to a lot of people there is a great deal of room for improvements.

Any and all improvements could be beneficial to lenders and borrowers. If payday lenders would consider reevaluating their practices they would be more widely accepted, looked at more favorably, and would make them more competitive with other lending institutions.

WHEN PAYDAY LOANS BENEFIT BORROWERS

In the midst of a financial crisis a payday loan can help cover an emergency and/or necessary expenses.  They offer numerous benefits:

Payday loans expenses

Payday loans expenses

  1. Payday loans are easy to apply and qualify for: The majority of lenders have simple approval policies with few limitations.
  2. Payday lenders safeguard borrower’s personal information:  Lenders are diligent with their record maintenance and security and do not give or sell borrowers personal and financial information to other companies.
  3. Payday loans are quick: The application and approval process only take a few minutes.  A lot of lenders offer a one-hour guarantee once a borrower is approved.
  4. Payday loans are flexible: They are typically short-term so that borrowers can repay them quickly and easily.
  5. Payday lenders limit loan amounts: The amount of money that a borrower is approved for is often directly related to borrowers’ earnings. Typically lenders will base the amount of money loaned on a percentage of the borrowers’ income in an attempt to make it easier for the borrower to repay the loan.
  6. Payday lenders are governed by legislation in most states: Many states have laws in place that prevent lenders from charging excessive fees and interest rates in order to protect borrowers from price gouging.
  7. Payday loans are typically unsecured and don’t require collateral: Payday lenders typically don’t require an explanation of what the loaned money is going to be used for and generally don’t place restrictions on the use of the loaned money.
  8. Payday loans are convenient: Payday lenders often have different business hours than traditional lenders and are open outside of traditional lending hours allowing borrowers access to emergency cash both in person and online.
  9. Payday loans are invaluable in times of financial emergencies: Payday loans are often available to the borrower in less than an hour after the approval of the loan so there is limited waiting on needed funds.
  10. Payday lenders are limited as to the amount of interest they can charge: Most states place a cap on fees, the amount of interest, and other charges lenders can charge for a payday loan.

Regardless of the topic or issue everything has advantages and disadvantages. Sometimes the advantages outweigh the disadvantages and other times disadvantages outweigh the advantages. Fortunately, with payday loans the advantages outweigh the disadvantages.

Disadvantages to Payday Loans:

 

Beware of fraudulent online lenders

Beware of fraudulent online lenders

  1. Payday loans are for short term needs only. Borrowers who need larger amounts of money for longer periods of time will not benefit from a payday loan.
  2. Payday loans involve fees and interest payments. The charges associated with a payday loan are a bit higher than traditional bank loans.  Inability to repay a payday loan by the maturity date can result in charges and fees that are doubled.
  3. Payday lenders require a borrower to be employed full time.  Potential borrowers who are only working part time, receiving unemployment benefits, or receiving welfare will more than likely be ineligible for this type of loan.
  4. Payday lenders require borrowers to have a current bank account.  Potential borrowers that deal with cash only will be determined to be ineligible for this type of loan.
  5. Payday loans are for relatively small amounts.  Most payday loans are approved for $1000 or less. Potential borrowers in need of larger amounts of money will be required to seek other alternatives.
  6. Possible fraudulent online lenders.  Potential borrowers contemplating applying for an online payday loan should research the company they are planning on borrowing from to make sure that the lender is reputable and trustworthy.  There are dishonest lenders that sell borrowers information.

Adair Morse, an assistant professor of finance at the University of Chicago, conducted the study “Payday Lenders: Heroes or Villains?” which determined that payday lenders benefit communities struck by natural disasters.  Morse study assessed the impact that payday lenders had on communities affected by a natural disaster by looking at four areas of community welfare: birth rates; death rates; drug and alcohol treatment rates; and foreclosure rates.

Morse study revealed that the presence of payday lenders in the disaster-stricken communities increased welfare in all four areas more so than traditional financial institutions.  Although the traditional financial institutions did somewhat benefit the disaster-stricken communities they were not able to provide the same level of services that payday lenders did.  Morse has indicated that this same principal can be related to people who are in a financial crisis.

Living paycheck

Living paycheck

Living paycheck to paycheck is nothing new to millions of middle-income Americans who juggle whatever they have to in order to meet their financial obligations. However, when unexpected expenses come up their budgets are thrown off and the need for financial assistance becomes inevitable.

Although some will turn to friends and family to get them through the crisis others will not have the available support system in order to do so and will require outside assistance or face having their electricity disconnected, their vehicle repossessed, their home foreclosed on or being evicted if they rent.  To those who have a limited support system payday lenders offer something they can’t get anywhere else, a friendly face and solace in the eye of the storm.

Payday loans aren’t always the perfect answer to a financial crisis but at least they are an option for those who have limited options. There are borrowers and lenders alike who abuse this option but at the same time there are borrowers and lenders who do not.

It would be incorrect to group all payday lenders in a single group and all payday borrowers in a single group.  As with all walks of life there are just as many honest lenders and borrowers as there are dishonest borrowers and lenders. To say that all lenders are dishonest and take advantage of their borrowers would be as much a misrepresentation as saying that all borrowers default on their debts and therefore can’t access traditional forms of credit.