Cash advance loan creditors market their solutions as useful solutions to short term cash-flow difficulties. Do not fall for the media hype. In the event that you’re struggling to pay the bills, chances are you will be even worse off should you get a pay day loan.
The simple truth is: Payday loans are actually an incredibly expensive form of obtaining money. They typically carry triple-digit rates of interest and include many hidden fees. A single pay day loan can quickly snowball into too much financial debt for one family to deal with. Many payday debtors come up short on their loan’s deadline, therefore they must get a whole new loan to get rid of the old one. Or in some cases, loan providers will offer consumers more money if they get a new loan to get rid of the old one. This is called "rolling over" a loan. Each time a loan is rolled over, the loan originator tacks on additional fees. This creates a spiral of debt from which some families never recover.
New Client Rights
Under a new law that started on March 21, 2011, Illinois clients finally enjoy stronger protection from the payday advance industry’s undesirable activities. The new legislation protects consumers from almost limitless roll-overs and mandates loans to be in accordance with a borrower’s capacity to pay. The new regulations also provides a completely new type of loan - the small consumer loan - that is somewhat less expensive in comparison to the common payday product. However, even with these new rights ready, customers must exercise caution when making a decision whether or not to obtain a loan to meet their urgent expenditures. The cost of short-term credit in Illinois remains very high.
Three Varieties of Loans
Small Consumer Loan: There are actually three kinds of payday or payday-like loans offered in Illinois. The most cost effective of these is the small consumer loan. According to Illinois law, a lender may impose an Annual Percentage Rate (APR) of a maximum of 99% on a small consumer loan. That is in no way cheap, but it’s significantly more affordable than a payday advance. For that reason, be sure to shop around. You can ask a provider if they provide small consumer loans. Be specific. If they don’t sell them, move on to a store that does. Stores that sell payday loans can't sell small consumer loans. It is illegal.
Besides having more affordable interest levels, small consumer loans have longer terms than payday cash advances - typically lasting about a year or maybe more. Stretching your repayments out over time is a sure way to help keep them manageable. To make sure you stay in your small consumer loan long enough to pay off a big part of your balance, the new regulation prohibits loan providers from rolling you over into a new loan in the first 75 days of your loan’s term. On top of that, by law, a small consumer loan’s monthly payments can be no more than 22.5% of your gross monthly income.
Payday Installment Loan: Just like small consumer loans, payday installment loans have longer terms as compared to conventional payday loans, lasting up to 6 months. Nevertheless, payday installment loans cost more than small consumer loans, with interest rates running up to 400%. Because of this, you'll want to make every effort to meet the requirements for a small consumer loan - or, preferably, an even more affordable loan - prior to taking into consideration a pay day advance product.
Illinois law provides payday loan consumers with some protections against the spiral of debt. For example, a loan company cannot roll over your loan when doing so would keep you in debt for over six months. Furthermore, a payday installment loan’s monthly premiums may be no greater than 22.5% of your gross regular monthly earnings.
Payday Loan: A payday loan is truly a short-term loan; it must be paid back within two to four weeks. Like the payday installment loan, a payday loan can have an APR of up to 400%. The combination of the short term and high fees increases the likelihood that you’ll not be able to pay off your payday loan when it comes due.
Should this happen to you, please bear in mind that under Illinois law, you are entitled to enter into an interest-free repayment schedule with your provider after you’ve been in debt for more than 35 days. This alternative applies only to payday loans, not to payday installment loans, and you need to request it. Additionally, the law prohibits providers from issuing a new payday loan if it would result in you being in debt for more than 45 days in a row. Together, both of these provisions are made to provide payday consumers some breathing room to repay their old payday loan debt without getting buried under additional charges and fees.