What you need to know about payday loans and car title loans
If the coronavirus pandemic is causing you financial stress, you’re not alone. Millions of Americans have lost some or all of their income because they can’t work. Government Economic Impact Payments can help, but some people may find 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 very expensive. This is what you need to know:
A payday loan is a loan for a short period of time, sometimes as little as two weeks. To get a payday loan, you give the lender a personal check for the amount you want to borrow, plus the lender’s fee. The lender gives you the money in cash minus the amount of the charge. On your next payday, you must pay the lender the amount you borrowed plus the fee, in cash.
Payday loans can be very expensive. Let’s look at an example:
- You want a loan for $500. The fee is $75. You give the lender a check for $575.
- The lender gives you $500 in cash. And the lender keeps your check.
- When it comes time to repay the lender, often in two weeks, you pay them $575. The lender returns your check.
Conclusion: You paid $75 for a loan of $500 for two weeks.
Car Title Loans
A car title loan is also made for a short period of time. They usually last only 30 days. To get a car title loan, you give your vehicle title to the lender. The lender gives you cash and keeps the title of your vehicle. When it comes time to repay the loan, you have to pay the lender the amount you borrowed plus a fee.
Car title loans can be very expensive. Let’s look at an example:
- You want a loan of $1,000 for 30 days.
- The charge is 25%. That is, the fee for a $1,000 loan is $250.
- When, after 30 days, it’s time to repay the lender, you pay them $1,250.
Car title loans are also risky. If you can’t repay the money you owe, the lender could take your vehicle. He could sell it and keep the money, leaving you without transportation. This video shows what can happen.
Other ways to borrow money
Payday loans and car title loans can be very expensive. Consider other ways to borrow money, such as taking out a loan at a bank or credit union.
Most loans have an annual percentage rate, or APR. The APR indicates how much it costs you to borrow money for a year. When you get a payday loan or cash advance loan, the lender must tell you the applicable APR and the dollar cost of the loan.
And what if you are a member of the Armed Forces?
If you are a member of the Armed Forces, the law protects you and your dependents. The law sets a 36% APR limit on various types of credit, including payday loans, car title loans, personal loans, and credit cards. The law also indicates that lenders have to give you information about your rights and the cost of the loan. The Armed Forces also offer financial assistance and help managing your money.
Other options if you can’t pay your bills
- Ask for time Ask the companies you owe money to if they can give you more time to repay it.
- Get help. A credit counselor may be able to help you manage your debts.
- Apply for unemployment insurance. Consider applying for unemployment insurance benefits from your state. For more information and to find out if you are eligible, visit the Department of Labor website.