Tips to avoid payday loan problems

Tips to avoid payday loan problems

(WMBF) – A push for more federal regulations on payday loan and title loan companies could affect customers' access to loans in the Palmetto State.

When it comes down to it and you need cash fast, there are two ways to go when it comes to quick lenders. If you have a job and a paycheck, you might go to a payday loan. If you have a car with a title, you might go to a title loan. Both come at high stakes if you cannot pay the loan off within the allotted timeframe.

President Barack Obama is pushing for new regulations on the $46 billion payday and title loan industry. It's something that is currently only regulated at the state level. Local payday lenders say they already follow state regulations. The local Better Business Bureau says more rules are desperately needed to help protect your money.

President Obama is suggesting that lenders should ensure that these payday and title loan companies are not taking advantage of low-income consumers in need of quick cash. He said last week in a speech that if these companies lend money, they should first make sure borrowers can afford to pay it back.

These companies are valid businesses, for as much criticism as they get about being fraudulent or scams. The president said there's nothing wrong with these payday loans making a profit, but he wants to make sure that the profit is not trapping hardworking Americans in a vicious cycle of debt.

"The payday loan people are going to tell you is that these loans are available to people who not otherwise would be able to get a loan," says Kathy Graham, the CEO of BBB Coastal Carolina. "So they claim to be valuable and it fits a need for the public. And I understand that theory. But if we could control the interest rates, if we could keep them at a low minimum rate. To where, they are in business to make money, we understand that. But not to make it impossible for the customer to pay it back."

Until anything changes at the federal or state level, the BBB says the bottom line is before you take out that loan, look how much you'll be paying in interest on the loan. That interest rate plus the actual loan amount should determine if you can afford to pay it back. Graham says it is not unheard of for payday loan interest rates to be up to 500% APR.

A branch manager of a local payday loan company says South Carolina law dictates a customer is only allowed one loan at a time. And once you pay it off, you have to wait one full day before you can hop to another plan to get another loan. After the first seven loans, it then goes to a two-day holding time. The most in South Carolina that a payday loan is allowed to hand out is $550 at a time. President Obama is requesting that the limit be set at $500 with a 60-day cooling off period before you could take out another loan.

"Any time it's get money quick, you're capturing those who are in desperate need right now," says Graham. "And those people aren't going to plan because they're making a reactive decision in the moment. As opposed to carefully thinking out, 'Is this realistic or not?'"

Graham recommends avoiding these type of loans at all costs. Instead, try to first borrow the money from someone in your family. But if you are going to do it, make sure you check at the state level and with the BBB to see if there are any unresolved complaints with that payday or title loan.

The local payday loan branch manager encourages potential customers to focus on just how much money you need, not on how much you want, and do not get suckered into a bigger loan than what you can actually afford to pay back, just because someone says you qualify for a bigger sum of money.

"If you can't afford it now, what makes you think you're going to be able to afford it next week, times two," warns Graham.

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