Banks compete with payday loans, offer checking account advances

Some of the biggest banks in the US are providing short-term loans at obscenely high interest rates, so much that certain consumer groups say that they are no way less of a torture as payday loans are. The matter is clearly divided between certain consumer group criticizing payday loans and products on the similar lines while other maintain such products are a boon rather than curse, especially when it comes to sourcing funds for emergency situations.

The trend now is Checking Account Advance or Ready Advance Loans, which are modeled on payday loans, but are offered by leading banks across the country including Wells Fargo, U.S.Bank, Regions, Fifth Third Bank and Guaranty Bank. Like payday loans, the advance loans provided by these banks are for two weeks or a month. But unlike payday loans, where you pay back by a post-dated check or a direct debt; in a checking account advance; the bank pays itself back directly from the customer’s checking account.

Consumer advocates have pointed out that these advance loans are not better than payday loans
, because they also carry high fees that borrowers find it tough to pay back by the time the loan due date is near. Putting pressure on the federal law-makers to stop payday lending by banks, a consortium of 250 consumer groups, religious affiliates and community-based organizations pointed out that payday loans actually make checking accounts unsafe for customers because their assets are stripped down and the saving habit is curbed. They have stated that this can further lead to bank account closure, uncollected debt and unbanked customers. With banks commercially interested in checking account advances which are on similar lines, they are definitely setting a dangerous precedence, these groups observed.

The checking account advance offered by banks is given for an average period of 10 days with a fee of $10 per every $100 borrowed. This means the APR comes to 365 percent, and consumers are struck in the debt cycle for an average period of 175 days per year. Compared to this, payday loans that are offered by non-banks are given for an average period of 14 days with $16 average fees per $100 lent. This is equivalent to an average APR of 417 percent. A study shows that consumers are struck in the loan trap for an average cycle of 212 days per year.

Banks are endorsing checking account advances stating that they are more credible compared to payday loans. They stress on the fact that their fees are lower than the traditional payday loans, and that applicants do not have to go through a verification procedure because after all, they are their checking account customers. Payday lenders also report repayment history to credit bureaus, so if you are one of the person who pay back on time, the move can improve your credit rating. The banks have reported that people who have used their loans have given a high satisfaction rating. The government’s new consumer watchdog, the Consumer Financial Protection Bureau is not exactly jubilant with the claim and is keeping a close watch on the processes being followed by the banks. One thing is clear here, the customer has a lot of options for short-term borrowing compared to what he had, years ago; and some disciplinary behavior in financial management can always help.

4 Great ways to get your credit report back on track

If you’re a patient person and it’s not any kind of federal debt you can rest assured that your credit report will heal itself after 7 years.

1. You need to obtain a current copy of credit report

This is important so that you can understand what has been reported on you. Relax because this free. Just Google free credit report and you’ll have plenty of options you can choose from. Don’t get credit monitoring confused with a credit report though.

A credit monitoring service will charge you a monthly fee to notify you of any changes that happen to your report and they also protect you from identity theft. Whatever option you decide to go with be prepared to answer a bunch of questions so they can make sure you are who you say you are. You should be able to get it instantly or you can have it mailed to you which usually take less than ten days.

2. Contact them

In your credit report you can find a number to call whoever it is that you owe money to, whether it’s a collection agency or maybe even something that you didn’t do. Once you get ahold of someone tell them that you want to settle the debt and ask them what they will accept to cancel it and have it removed from your report.

You’ll be surprised at how fair many of them are as well as what they’re willing to accept. However, some may not be very fair or even nice to you. If you can’t agree on anything and you start to feel your temperature rise, ask yourself this question:

Do I really want to wait 7 years for this to eventually come off of my record?

The answer you come up with will determine whether you should negotiate further or tell them to take a hike and you can mark your calendar for 7 years.

3. Get a loan and consolidate everything

Most likely, you probably don’t have enough cash on hand to pay off all of your creditors. What you can do here is add up how much you’ll need to get one loan and pay everyone off at once.
You may be wondering if the banks will even give you a loan because of you’re messed up credit report. Most likely, you will not get a loan from the traditional lenders and banks; however, there are specialized lenders aka Bad credit lenders out there to help you.

The downside is that these lenders will charge you more than the traditional banks will, but they will also take into consideration how much you make and if you’re able to afford the payments.

4. Don’t make the same mistakes that led to a poor credit score

If you get yourself into a pinch and you’re not able to pay your bills, contact your lender and come to some type of understanding. They will want to you to pay them back and will usually offer you some kind of solution to help you achieve this.

If they have to go through the process of hiring a debt collecting company it costs them money and they would much rather work out a solution with you.

Financial Freedom Comes From Debt Elimination

Who does not want to be debt-free? Even some businessmen incur debt from banks when they borrow capital money for their business. Your monthly earnings may not be sufficient enough to meet other personal needs. The need to have a shelter of your own alone is not easily acquired by simply paying it in cash unless you have it. Sometimes, you need to borrow if you are allocating the money for something important, but if money borrowed is spent on unimportant things, this now is a really bad habit you must get rid of.

The feeling of being completely debt-free is like a breath of fresh air. So start making your plan of gaining complete debt elimination.

Assess Your Expenses

You might want to ask yourself why you are in debt in the first place. Did you need the money to start a business or were you just a reckless spender and impulsive buyer? Have you been tolerating your use of credit cards? If you are guilty of the latter, it sure is high time for you to act on your debts.
Your financial condition must be seriously considered before getting involved in any kind of debt. The ironclad rule is not to spend more than what you can afford. Yet, people seem to miss that part so they end up getting drowned in debt for expenses that are not really of importance.

Assessing Your Total Debt

Take a journal or a sheet of paper and list down the debts that you are currently facing whether it is a credit card debt, personal loan, mortgage loan and others. Calculate the amount you set aside for debt payment. Think of ways for you to make the monthly dues lower. Consider a balance transfer if you own more than 1 or 2 credit cards. Also, try refinancing from a credit union since it offers lower interest rates than banks.

Control the Urge to be in Debt

The best way to gain financial freedom is to exercise self-control from being in debt. Instead of having to pay every month and incur again another debt after paying it off, focus on just eliminating the current debt and no more after that.
After paying off existing credit cards, cancel it immediately and commit to making cash purchases or using debit card instead. Consult a credit counselor or financial consultant if the debt is more than you can handle. Learn how to budget your money and reduce unnecessary spending.

You cannot just leave your debts unattended after splurging the money you just borrowed. You are solely responsible for paying it off. Otherwise, you will suffer from bad credit standing on your credit report and face even bigger consequences in the future.

3 Tips for Budgeting Your Personal Loan Money

Taking out a personal loan is sometimes a necessary part of finances. After taking out the money in a loan, it is important to work out budgeting to stretch the money as far as possible while managing all expenses. This helps lower the amount of money needed in the loan and makes it possible to repay the amount quickly.

Determine the Amount Needed

Before taking out a personal loan, it is vital to take time to determine what is necessary and what can wait until later. By prioritizing and looking over every detail of the financial situation, it is then possible to set a minimum loan amount. Ideally, the best way to budget repayment after the minimum loan amount is set is determining how much the monthly payments come out to and taking as little cash as possible to handle the situation.

By setting up the amount beforehand, it is possible to limit the payments and make repayment budgeting smoother. It also helps keep the details of the loan spending prioritized and pre-determined.

Obtain a Prepaid Debt Card

The best prepaid debit card options are ideal to avoid overspending the loan amount when using it to make pre-determined purchases. Prepaid debit cards allow you to put the money from the loan on the card and then spend like any other credit or debit card. This makes payment convenient while also limiting the spending amount.

For the best spending spread, putting only the amount needed for one particular purchase plus added taxes on the card before shopping will prevent overspending in one place. This helps spread out the loan amount among the pre-determined needs and prevents the temptation to add unnecessary items to the purchase.

Try to Avoid Spending Everything

A personal loan can offer a means to pay for needs slowly without the high interests of a credit card or short term loans. Due to the reasonable interest rate, it might be tempting to spend everything from the loan immediately. Instead, taking the time to set aside some of the money for unexpected costs, emergencies and other needs that might arise can ensure that the situation is in hand and it is unlikely to result in a shortage of funds.

Budgeting the personal loan is primarily about planning the spending, limiting the loan amount and taking measures to prevent overspending as a result of obtaining a large sum of cash at the same time. With planning, it is possible to avoid complications that otherwise arise later.

2012 Financial Goals and Planning Should Start This Week

If you want to get ahead in 2012, eliminate some debts and start saving some money for retirement, the best time to get your plan in place if you don’t already have one is this week. Starting the New Year on the right financial track, could be the difference in hundreds to thousands of dollars that you can budget for and plan to save. Most financial experts would agree the first step in this process is simply to take time to write down all of your weekly, monthly and annual expenses. Once you fully understand where you are spending your money you can begin to strategize ways to reduce some of these expenses and potentially eliminate things that you don’t often use.

Some simple ways to save money in 2012

– Shop for a new cable service package, eliminating some premium channels you may not be watching
– Put your insurance policies on an annual premium
– Apply for a debt consolidation loan at a lower interest rate
– Find out about deals for balance transfer credit cards
– Refinance your home mortgage to a new lower interest rate
– Apply for a home loan modification
– Review your print subscriptions to see if an online version is less expensive
– Eliminate home phone service or consider a VOIP plan
– Avoid the pitfalls of payday loans or cash advance loan providers
– Make shopping lists prior to going to the store
– Plan your shopping trips in advance to reduce impulse purchases
– Check your insulation and window drafts to reduce energy loss
– Find online coupons for big ticket purchases
– Implement a 24 hour cooling off period for any big ticket purchase items
– Exercise more and eat less (making a shift to a healthier could save you thousands of dollars in the future)
– Purchase a used car versus new car, car values drop substantially once they are driven off of the lot

Getting ahead is about trying to make good decisions and stick to a plan. Creating any plan is better than not having goals for the new year, if you start now and take small steps you will be surprised at how the little things can add up quickly. We hope 2012 is a year of prosperity for you and your family and one where some of your financial dreams begin to come true 🙂

What do you think, do you have some other tips for saving money in 2012 and creating a personal financial plan, share your ideas with our readers below.

Signature Loans Borrow Money Simply Based On Your Credit Scores

We need loans for different reasons, be it personal or business purposes and not always do we want to give any collateral in return. Signature loans are what offer you the chance to get a financial backing without the hassle of having to cough up documents and certificates like secured loans. Now as the name implies, these loans are simply financial loans that need just your signature for guarantee, which means you don’t have to list any kind of collateral to qualify for the loan itself. Signature loans are also referred to as Character loans or Good-faith loans by financial institutions.

Signature loans can be used for any purpose that the loan bearer chooses, though the interest rates are higher than other forms of loans because of the absence of any actual collateral. That is because your signature is used against any real collateral. Signature loans are generally reserved for people who have a spotless credit score. However people with low credit scores don’t have to panic. With certain conditions, even they can avail a signature loan facility for emergencies. For instance, a long-term and strong relationship with your bank or lender will always be helpful.

The moneylender or creditor will first check you for a solid credit score and a legitimate source of income after which they will decide whether to issue the loan or not. Sometimes, a co-signer is requested by the bank/lender to sign on a promissory note and only be called upon in the case that the loan borrower is unable to repay the loan. Since signature loans are unsecured loans, the moneylender solely relies on your promise to pay him back. Not only are they taking a big risk, they are also paying you a large sum of money without any actual collateral.

This is why the interest rates are higher and you generally have to agree on a limited period, where penalties may be charged if you are unable to pay it within the stipulated duration. This is why a good, strong credit score helps, as the stronger your credit history, the more flexibility you enjoy in terms of the loan. It is simple enough to understand how to go about applying for a signature loan. The first thing is to check your credit score, and then call up your bank. Check their past history in terms of signature loans and how flexible the bank is with it.

You must be well prepared with all your documentation and have all your stubs, W-2’s and forms paid for at least the past two years. Make sure your tax returns are all filed and your dues cleared, so that you can convey a good image to your bank lender. Solid references from friends and peers will help, as will knowing about the details about signature loans. And once your payment is approved, you will be issued a cheque of the amount you applied for and you will typically receive the approved amount within a month of application.

Debt Consolidation Personal Loan, How to Choose One, What to Look For

One of the doubts unsecured loan customers have when it comes to repayment is, if it is worth going for the personal loan route to pay off their bills. This is mostly evident in credit cards, when a person has a few credit card payments outstanding and he or she would like to opt for debt consolidation.

Going for personal loans for debt consolidation is a good idea; there are many banks today that offer unsecured and secured personal loans and they can be a real boon if used correctly. For instance, some banks customize and give personal loans that actually solve debt problems. Interest rate is of course a moot point when it comes to choose a payment plan to pay off our existing debts. Here are some things that you may want to take into consideration when choosing a persona loan for debt consolidation:

1. Types of personal loan – A person loan can be of two types-secured and unsecured. A secured one has some kind of asset as security tied to it. If you default on the loan, the bank or the provider of the loan can take ownership of the asset. An unsecured loan has no collateral, and if you default on this, the bank or the provider of the loan has no other option to but to ask for collections to take strict action or initiate a legal recourse.

Both types of personal loans are for a particular period of time, like 3 to 5 years. Though the repayment and monthly payment every month is fixed, which makes personal loans even more viable, the unsecured kind will carry a higher interest rate, understandably so.

2. Interest rate – The reason it is advisable to go for personal loans for debt consolidation is because they have lower interest rate than the credit card. However, the affixing of interest rate on the persona loan depends on three factors- income, payment history and credit score. If your credit score and income is high, you can get the person loan at lowered interest rate. The bank and the state in which you apply for personal loan can also impact the interest rate. So, it is better to check with the website of the bank to know the exact loan you can get and the interest rate.

3. Period of the loan – If you can get a better interest on your personal loan compared to your credit card, go for it. But then also check out the tenure or the duration of time, in which you have to pay back the loan, the prepayment penalty and if you can consistently pay back the money every month.

4. Keep a reservoir of emergency funds – Set aside a fixed sum of money ever month; this can build up a reservoir of ‘emergency funds’ over a six month period. So the next time, you are in a debt-trap, you can just pay through this emergency kitty. If you are starting late, and have taken personal loan, the emergency funds can come handy later as well.

Advantages and Disadvantages of peer to peer loans

Peer to peer lending is one of the modern forms of lending based on the social networking concept. Here the borrower can get a loan approved to the amount $25,000 or less by placing his request on the site. His story is heard by potential lenders or members on the site, who then pool the money and extend the loan to him.

Let us look at the benefits and disadvantages of peer to peer lending

Advantages of peer to peer lending:

1. . Bypass the middlemen involved: The middlemen like banks and other similar signature and personal loan lenders, more often referred to as traditional institutions involved in a conventional lending process are removed; this means the borrower can get the money approved faster and without wasting too much energy, time and money.
2. Low interest rate: Even though it is a non-secured form of debt, the interest rate is low at the rate of 9 to 10 percent compared to other forms of unsecured debt where the interest rate is more than 12 percent
3. Better terms of payment: The terms of payment are on an average of 36 months and can even go up to 60 months or 5 years. This means the borrower has better flexibility in terms of payment
4. Fast disbursal of funds: The borrower can get the money promptly, the rate quote comes in fast and the borrower has a lot of options to exercise.
5. Good for debt consolidation: The money can be used for consolidating debt, even credit card debt and other unsecured debt.
6. Fixed rates of interest: The rate of payment is fixed for the life of the loan, there is no risk of rising, variable rates.
7. Benefit to the lender; The lender can earn more returns on his investment compared to what he’d get if he had parked his money in the bank. Also there is more transparency in the process, the lender is able to get the full side of the story of the borrower and then make a decision to give the loan. The money is usually auto-debited from the bank of the borrower.

Disadvantages of peer to peer lending

1. Not getting too many lenders to help: The money for the loan comes from too many lenders or investors. But if there are not too many lenders interested to give you the loan, you may not be successful in getting the loan amount in full.
2. High interest rates: Agreed, that compared to many unsecured form of debt, the interest rate in peer to peer loans is not as much. But these loans are still an unsecured form of credit, which means the interest rate is still high.
3. L Enders unknown: Though the lenders get to know much information about the borrower as to why he wants to avail of the loan and other details, the lenders enjoys a relatively fair share of anonymity. The borrower may not have knowledge about what the investor does or what their financial institution is all about. If you are taking loan from a traditional institution, you have information about its business, history and financial reports. But in peer to peer lending, the lender can be a risky proposition.
4. Irrecoverable losses: There can be losses in the loan, and the lender may not be able to recover the money with as much as effort like a traditional institution does. For instance, in case of credit card companies, there are loan officers and debt collection agencies who take action in case the money is not recovered. The peer to peer lending works more on good faith and compatibility of the lender and the borrower; so comparatively, it is a risk as far as getting back the money is concerned.

Tips to End Living Paycheck to Paycheck Cycle

The number of people living paycheck to paycheck in America is quite staggering. As per a new survey, one-third of Americans were living paycheck to paycheck. DS News posted the startling findings of this survey that was conducted in the middle of September on its website recently. The survey ascertained that in case these people lose their job, they would not be able to pay their next rent or mortgage installment.

If you are also facing the same situation and want to get out of this predicament, you will have to work hard for it. Here are some tips that can help you to break this vicious cycle.

Besides looking for a better-paying job, one thing you can do is to spend fewer amounts of money than you make and put away those extra dollars to manage any economic emergency that may arise in the future. The best approach is to stash away enough money to cover your living expenses for three to six months. While this could be difficult for you, especially if you barely make it to the month end with your current paycheck, so a great way is to start small. Saving money to cover your one month’s expenditure would be an ideal way to go about this.

You need to devise a plan to build your financial reserve. Few American’s living paycheck to paycheck have any sort of spending or financial plan. They usually live from one month to another without knowing where their money goes. They often end up spending all their earnings before the month is over.

A proper financial plan is to keep track of your spending and create a list of priorities so that you can pay for your essentials first and make payments for luxuries only if you have enough surplus money left. You will need to track your small expenditures such as paying for coffee or spending on entertainment. If you follow this plan diligently, you will be shocked where your hard-earned money is going every month and how much amount you are spending on items you don’t necessarily need.

Create an emergency fund. After making your budget plan, you should now open a saving account in a bank to deposit your savings. The best and convenient way is to have a specific amount deducted from the paycheck and deposited in your saving account automatically. Put away three to ten percent of your every paycheck into your bank account.
Keep a close eye on your expenses. Determine how much money you spend on lunches, drinks, cigarettes, movies and others things. These small luxuries can make a big part of your spending and cutting these expenses down will save you plenty of money. You can also save huge amounts if you carefully scrutinize your bigger expenses. For example, you can reduce your monthly cable bills from $100 to $40 and save $720 every year.

It is not easy to end living paycheck to paycheck cycle, but you can do it with some intelligent planning and a bit of will power.

Payday Loan Ban and the Workaround used by Payday Lenders

Across 13 states of the US, and the District of Columbia, the usury caps have put payday loan companies out of business. These states are Arizona, Arkansas, Colorado, Connecticut, Georgia, Maine, Maryland, Massachusetts (not banned totally but highly regulated), New Jersey, New Hampshire, New York, North Carolina, Pennsylvania, Vermont, West Virginia etc.
However, as we know most prohibited things have loopholes that are exploited, there is a similar case with payday loans and cash advances also. Clever lenders and their attorneys have recognized a loophole in the intricate network of state and federal laws that presently administer consumer lending. Federally-chartered banks are exempted from state usury caps, and they have taken advantage of this system to get into the business of ultra-high-cost lending themselves, with APRs that go up to 650% (more than 200 percent higher than payday loan interest)

The National Consumer Law Center states how payday lenders made good of the restricted system. Normally, when loans are given to residents of one state by a bank that is based in another state, the interest rates applicable are those of the state, where the bank has its headquarters. That is in essence, why credit card companies are mostly issued by banks in places like Utah, Delaware and South Dakota, where there are no usury caps and little regulation. That is why you have refund anticipation loans prepared by a few banks in some states, having their business throughout the country
Payday lenders, especially the ones who have come under high regulatory bracket, have decided to emulate credit card lending practices. For instance, when North Carolina put into motion an usury cap to prohibit payday lending, the lenders started a ‘rent a charter’ system with out of state banks, and continued businesses like always, stating that they were merely acting in the capacity as ‘agents’ of these banks. They started doing good business, without worrying much of the usury laws, till the federal bank regulators said that payday lending in North Carolina has to end, because the banks cannot make loans through agents that they have no ‘total’ control over. However, there has been no banning on banks themselves who make ultra-high priced loans.

One feels that such kind of discrimination with one hand giving total leeway to the banks to charge high interest, while banning payday lenders is unwarranted. The administration has proposed for Consumer Financial Protection Agency that would bring in standardization, accountability and simplicity to the regulation. A nation-wide usury cap would bring uniformity to all types of lending, and not consider payday lending in isolation.