What you need to know about payday loans and auto title loans
If the coronavirus pandemic is causing you financial stress, you are not alone. Millions of Americans have lost all or part of their income because they cannot work. Government Economic Impact Payments can help, but some people may look for other ways to borrow money for a short period of time. They may consider options like a payday loan or a car title loan, which can be quite expensive. Here’s what you need to know.
A payday loan is a loan made for a short term. Sometimes only two weeks. To get a payday loan, you give the lender a personal check for the amount you want to borrow, plus any fees the lender charges you. The lender gives you cash less fees. On your next payday, you must pay the lender the amount you borrowed plus fees, in cash.
Payday loans can be very expensive. Here is an example :
- You want to borrow $ 500. The fee is $ 75. You give the lender a check for $ 575.
- The lender gives you $ 500 in cash. He keeps your check.
- When it’s time to pay the lender back, often within two weeks, you pay them $ 575. The lender returns your check to you.
- The bottom line: You paid $ 75 to borrow $ 500 for two weeks.
Car title loans
An auto title loan is also a loan made for a short period of time. They often only last 30 days. To get an auto title loan, you give the lender title to your vehicle. The lender gives you the money and keeps title to your vehicle. When repaying the loan, you must pay the lender the amount you borrowed plus fees. Car title loans can be very expensive. Here is an example :
- You want to borrow $ 1,000 for 30 days.
- The fees are 25%. To borrow $ 1,000, it’s $ 250.
- When it’s time to pay the lender in 30 days, you pay them $ 1,250.
Car title loans are also risky. If you can’t pay back the money you owe, the lender could take your vehicle from you. He could sell it and keep the money, leaving you without transport. This video shows what can happen.
Other ways to borrow money
Payday loans and auto title loans can be very expensive. Consider other ways to borrow money, such as getting a loan from a bank or credit union.
Most loans have an annual percentage rate, or APR. The APR is how much it costs you to borrow money for a year. When you get a payday loan or cash advance, the lender should tell you the APR and the cost of the loan in dollars.
Here is a comparison of loan fee of $ 500 for one year.
What if I’m in the military?
If you are in the military, the law protects you and your dependents. The law limits the APR on many types of credit, including payday loans, auto title loans, personal loans, and credit cards, to 36%. The law also requires lenders to give you information about your rights and the cost of the loan. The military also offers financial aid and assistance in managing your money.
Other options if you can’t pay your bills
- Ask for time. Ask the companies that you owe money to if you can have more time to repay the money.
- Acquire help. A credit counselor can help you manage your debt.
- Apply for unemployment. Consider applying for unemployment insurance benefits from your state. Learn more and find out if you qualify on the Ministry of Labor website.
Get more tips on dealing with the financial impact of the coronavirus, including what you can do if you are: