Payday loans are a short-term solution for those in need of immediate cash. They are small, high-cost loans that typically charge triple-digit annual percentage rates (APR) and require repayment within two weeks or close to the borrower's next payday. Unfortunately, many borrowers find themselves in a cycle of debt due to the high interest rates and fees associated with these loans. The Consumer Financial Protection Bureau (CFPB) found that 20% of payday loan borrowers defaulted on their loans, and more than 80% of payday loans contracted by borrowers were extended or re-borrowed within 30 days.
To break this cycle, borrowers can take advantage of bad credit debt consolidation loans, alternative payday loans (PALs), or seek help from a professional counselor. Bad credit debt consolidation loans have stricter approval requirements than payday loans, but they generally charge much lower interest rates and fees. Credit unions may offer PALs, which are less expensive and give you a longer repayment period. A professional counselor can provide tips and strategies on how to best target your payday loans and other debts.
The Military Lending Act (MLA) provides additional protections for military personnel, including a 36% Military Annual Percentage Rate (MAPR) cap for a wider range of credit products, including payday loans, vehicle title loans, application loans, deposit advance loans, installment loans and lines of credit open without warranty. If you're considering a payday loan, make sure you understand the terms and conditions before signing any agreement. Be aware of the high interest rates and fees associated with these loans, and make sure you can afford to pay them back on time. If you find yourself in a cycle of debt due to payday loan fees, consider taking advantage of bad credit debt consolidation loans or alternative payday loans.