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Avoiding payday loan penalties

paydaypenalties2Payday loans are characterized by high interest rates. Moreover,defaults attract huge penalties. In this regard, a small payday loan could turn into a huge financial debt in the event of a default. Tens of thousands of borrowers have found themselves in a deplorable financial position due to defaults. Fortunately, if you master these tips, defaulting payday loans will never bring down your financial position on its knees.

1. Overdraft protection

As a rule, the minimum threshold for one to qualify for a payday loan is a checking account. It is prudent to get an overdraft protection on one’s checking account. Overdraft protection is placarded the best form of security against penalties. Consequently, if your checking account does not have sufficient funds to cover the payment of a payday loan, your bank credits your account with money to cover the difference. Remember, the interest rate accruable from a bank overdraft is not as high as a payday loan default charges.

2. Backup plan

More often than not, most borrowers have a primary means by which they intend to repay payday loans. Unfortunately, things do not always work out as planned. Therefore, it is imperative to develop a backup plan just in case something screws up. Good backup plans may include short term loans from family and friends. If worse comes to worse, it is better to take up a second payday loan to offset the first rather than be a victim of default penalties.

3. Contest penalties

If you do not agree to a penalty, it is your constitutional right to contest it. Some unscrupulous payday loan companies impose unwarranted penalties on borrowers. Such companies are in violation of the law and they are obligated to refund the money back. Consult an attorney with the view of taking a legal action against the payday loans company.

Happy-People-SilhouettesPayday loans news across the pond

The city of San Jose, California, has recently proposed an ordinance to cap the number of payday loans businesses operating in the city. In addition, the ordinance proposes to restrict payday loan businesses from setting up business close to the city’s low-income areas. This ordinance will restrict the city’s 38 payday lenders to their present business locations, if the ordinance is passed.

The ordinance will allow another payday loans business to occupy the same location as one that has closed its business operations, provided it is done within six months of the first business leaving that location. However, if the new business occupies the location more than six months later, it will become subject to all the restrictions of the new ordinance. This includes not being within a quarter mile distance of another payday loan business or within a quarter mile distance of a low-income area.

Even though opponents of the proposed ordinance realize that the short-term intention of the payday loans has turned into a resource borrowers return to again and again despite the 460 percent fees, they maintain that capping payday loan businesses will hurt borrowers who rely on the ready source of money. They point out that at least the payday loan operations are regulated, and if borrowers are forced to look elsewhere for short-term credit, they may turn to sources on the Internet run by overseas businesses. These online businesses are not only unlicensed and unregulated, but they charge larger fees for their loans.

San Jose community leaders support the need for the proposed ordinance, but what also needs to be addressed is the capping of the rates charged for payday loans. That can only be changed by state lawmakers. However, the California Assembly has recently passed a bill increasing the payday loan limits from $300 to $500.

San Jose is moving in the right direction by attempting to regulate payday loans businesses in its state. Such initiatives by other states could help accelerate the move to further restrict the operations of payday lenders.

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Warning: Late repayment can cause you serious money problems. For help, go to moneyadviceservice.org.uk