A payday loan is often a cheap, simple term loan just under $500 that is usually given to people who have low income. Payments generally range from $10 to $30 on every $100 borrowing. If you have borrowed $300, for instance, fees will range from $30 to $90. Borrowers give the lenders a check for the loan plus fees, scheduled until their next payday. The lender receives the borrowers’ interest and principal by cashing the check on the borrowers’ next payday.
You are usually eligible for a payday loan whether clients receive benefits from the Social Security Administration (SSA) or not and therefore can prove the transactions. Social Security payday loan recipients are welcomed by payday lenders because their checks are timely and consistent. Many citizens, especially Social Payday loan recipients, find the loans to be quick and simple to obtain.
Convenience comes at a cost
Social Security payday loans are convenient, but they come at a high price. According to the Consumer Financial Protection Bureau, standard two-week payday loans with just a fee cost $15 on every $100 lent correlates to an Annual Percentage Rate (APR) of nearly 400 percent (CRPB). Thus, according to Bankrate.com, the standard credit card has to have an APR of almost 16 percent.
Social Security payday loans, according to some economists, are a good remedy for short-term cash shortages if they are paid off efficiently. “The issue with these loans is when you pay off one loan and still don’t have enough money for the next pay period,” says Kimberly Blanton of Boston Colleges’ Center for Retirement Research, who has also written the Square Way Blog. “As a result, you borrow more.”
This is a pricey technique. If you can’t repay the $300 payday loan with $45 in 2 weeks, the creditor will recommend that you only pay the money instead of the principal. However, you would repay another $45 in penalties including the amount until the next payday, totaling $90 for a $300 loan in one month.
According to Haydar Kurban, an economics professor at Howard University, the industry says, “Look, borrowers get to repair their car and go to work so they keep their jobs.” “The issue is anyone who takes out ten to twelve loans a year. In addition, the payday loan technique is to land borrowers many times.”
There’s an added risk for beneficiaries of Supplemental Security Income (SSI) and SSA program helps an individual who has no income or low income. Your SSI benefit is not affected by your loan, but any funds you borrow and don’t spend the following month will count against the $2,000 resource cap for a person (or $3,000 for a couple). You will not be eligible to collect SSI for that month if the value of your resources exceeds the permissible cap at the beginning of the month.
A Tempting Choice in Hard Times
Lending increases during difficult times, and the coronavirus also suffocated the United States economy. Despite the fact that economic circumstances have strengthened since the outbreak of the deadly virus, when poverty reached 14.7%, thousands of Americans remained in poverty especially those who worked part-time mostly on a contract basis.
Payday loan competition is weaker whenever the economy is growing. In a 2019 paper by Kurban, it was revealed that almost 4.6% of Social Security retirement beneficiaries younger than 66 used payday loans in 2010. Payday loans are used by 5.9% of SSI applicants in almost the same age category. (The use of payday loans is typically lower among older Social Security and SSI recipients.)
Has there been an increase in payday loans now since the economy would be in a slump? Kurban says, “I think that’s a good statement to make.” “During the economic downturn people are looking for extra income, but when they can’t find it, they switch to payday loans.” According to Kurban, almost 6.2% of Social Security applicants aged 66 and 21.9% of SSI borrowers used payday loans in 2010, even as the state recovered from its worst crisis since the Great Depression.
Alternatives to Payday Loan
Based on the current Consumer Financial Protection Bureau, there have been more payday loan outlets than McDonald’s restaurants during 2017. Kurban does not believe this is still the case: the interest rates that payday loan companies can charge are controlled by states and the respective governments of states have been placing tougher limits on the lending rates that payday lenders can charge. Payday loans are illegal in the district of Columbia, North Carolina, Arkansas, Georgia, Arizona, and New Mexico. Many other states have capped payday interest rates at 36%. The CFPB’s site on payday loans has the guidelines for payday loans in your state.
Payday loans and any other so-called alternative finance firms, including pawn shops, are often viewed as just one feasible option to get funds in a financial crisis by people without the need for bank statements or with poor credits. Additionally, you should exhaust all other options before accepting a payday loan. Consider the following examples:
- AARP’s Money Map is used to be considered, a step-by-step guide to getting deficits and taxes under control.
- Negotiate a longer payment period or a decreased payment with the creditors. It’s often better to avoid a payment problem with such a borrower, specifically a utilities or loan provider, by planning ahead. Don’t wait unless you have been disconnected or have been served a legal notice.
- Request a loan from family or friends. Borrowing more money from family and friends can be complicated or even humiliating, or if you are going through some crisis then that does not hurt to ask. Be honest with yourself and how long it would take you to repay the amount.
- Make an effort to start an emergency fund. Financial institutions will frequently allow you to definitely start small and they will contribute a few dollars to the emergency fund on a regular basis. (They also tend to have higher saving funds prices than banks.) The restriction is that you must be a member of a credit union to participate. A financial institution near you can be found using the National Credit Union Administration’s online program.