The impact of the coronavirus pandemic is being felt across the country. Whole cities are locked down. The economy is contracting. Millions of Americans are furloughed or have lost their jobs.
What effect has all this had on people’s finances? A recent survey confirms what we intuitively know. People are spending far more than they usually do on supplies and food. Many are taking money out for their savings to meet day-to-day expenses. With cash running short, individuals are even turning to high-cost sources like payday loans.
How bad is the problem?
It’s probably worse than you can imagine. Consider the unemployment numbers. About 30 million people have filed for jobless aid in the past six weeks. Experts think that more Americans will lose their jobs before the COVID-19 crisis is over.
Unemployment Claims Surged Due To Coronavirus
Source: CNN Business
The GDP numbers are even more revealing. US GDP contracted by 4.8% in the first quarter of 2020. Kevin Hassett, the senior economic advisor in the Trump administration, says that the second quarter’s figures could be “… something like minus 20% to minus 30%…”
Rising joblessness and an economy going into a tailspin could leave individuals across the country desperate for cash. Where will they find the money they need?
Payday loan companies could see a surge in business
There are about 23,000 payday lenders in the US. So, it’s easy to access these loans. People who need funds can walk into a nearby payday loan store and make a loan application.
But what about the “shelter-in-place” orders that restrict the free movement of people in much of America? That isn’t holding payday lenders back. In some states, payday lenders are classified as “essential” businesses. They can continue to function despite the lockdown. And payday loans can be approved and disbursed online.
Despite their easy availability, stay away from these loans. A report in MarketWatch, a website that provides financial information and business news, points out:
Payday loans are generally not a good idea — most financial advisers say to avoid them at all costs.
Why shouldn’t you borrow from a payday lender? There are two big problems:
High cost of borrowing: To understand how much a payday loan can cost, let’s consider an example. If you receive $100 from the payday loan company, you could have to pay a fee of, say, $15. That doesn’t seem like much on a $100 loan. But the $15 fee is for borrowing the money for only two weeks. It works out to an annual percentage rate of almost 400%.
The money you borrow from your credit card company costs far less. Credit card APRs usually range from 12% to 30%.
Most borrowers renew their payday loans: You may think that paying $15 for a $100 loan isn’t too bad. The APR may be high, but in dollar terms, $15 is reasonable. However, the issue is more serious than that.
According to Consumer Financial Protection Bureau (CFPB) data, three-fourths of payday loans are taken by people who have borrowed 11 or more times a year. They borrow repeatedly because repaying the first loan leaves them with little cash for their immediate needs. Typically, repaying a $200 loan could mean paying the payday lender a total of $1,000. Your costs and fees could be several times your original loan amount.
Taking a payday loan could mean getting trapped in payday loan debt. So, it makes sense to keep away from payday loans altogether.
But what if you’re already in debt to a payday lender?
Repaying your existing payday loans
Getting out of payday loan debt in normal times can be bad enough. But escaping from your payday lender when the coronavirus pandemic is raging could be even more difficult.
Fortunately, there’s a way out. At REAL PDL HELP we’ve developed a payday loan consolidation program that can help you to get out of debt.
What are the benefits that payday loan consolidation offers?
- All your payday loans are combined into one loan. So, instead of paying multiple lenders, you need to make only one payment.
- We’ll negotiate on your behalf with all the payday lenders. There will likely be a reduction in the total amount you owe.
- Our negotiations could also mean you pay a lower interest rate on your outstanding loans.
- Best of all, there could also be a reduction in the sum you must pay every month. This will be achieved by extending the repayment period.
How will payday loan consolidation work in your case? Contact us for a free consultation, and we’ll quickly review your details and provide a step-by-step plan.
The COVID-19 crisis could have a huge impact on economic activity and employment. If this leaves you short of funds, the worst thing you could do is to turn to a payday lender.
But what if you’re already in payday loan debt? REAL PDL HELP’s loan consolidation program could provide the solution you’ve been looking for. Contact us to find out more.