There is no denying that in an emergency situation – when the electricity is about to be shut off or a car tire blows out – short-term payday loans can seem like an attractive solution if funds are tight. Borrowers only need a pay stub, proof of identity and a bank account to gain instant access to cash without a credit check.

Despite the seemingly obvious benefits, payday loans have repeatedly proven to be an incredible financial drain on people who already live paycheck to paycheck. Often referred to as predatory lenders, these companies tend to cater to those who rely on a limited budget. Before signing the loan agreement, consider these five reasons to stay away from payday loans.

1. Excessive Interest
   Payday loans are typically issued for no more than half your take-home paycheck. Most loans are $ 100 to $ 500 and are issued for seven to 30 days. Although some states have capped interest rates at 36 percent, payday lenders are allowed to charge any rate they want. Loans typically start at 300 percent but can go as high as 1,000 percent. Even at the low end of the spectrum, a two-week, $ 300 loan will cost nearly $ 35 in fees.
2. Cycle of Debt
   Before leaving the store, you must provide a post-dated check that covers the loan and the fee. Online payday loan companies require a debit card so funds can be automatically withdrawn from a bank account. Fees may be just high enough to cut into living expenses for the following pay period, which means the loan needs to be renewed.
   If you cannot pay the agreed upon amount by the due date, you can pop into the store before the check is cashed to extend the loan by only paying the interest. Oftentimes, a $ 30 verses a $ 335 payment is more affordable. Within five months, the interest charged on the account will equal the original $ 300 principle loan. Despite making monthly payments, no progress is made on paying off the actual debt.
   The Center for Responsible Learning (CRL) describes the short-term aspect of payday loans as a myth. A CRL study that followed 11,000 borrowers for 24 months found that many continued to carry a portion of the original debt two years later. “The actual experience of payday loan borrowers reveals there is nothing quick about the loan except its small principal,” the report criticizes.
3. Damages Credit Score
   Many people believe that any type of loan will help boost their credit score, which determines the interest rates charged on all loans, the premiums paid for car insurance policies and the homes that people are able to rent. When reviewing credit reports, lenders see payday loans as a sign that you are already struggling to pay the bills.
4. Too Easy to Default
   The CRL study on payday loans found that 44 percent of borrowers defaulted on their loans. Payday lenders require a postdated check to cover the original loan agreement. If the check bounces when the lender deposits it, the account goes into default, which triggers a higher interest rate. The account is also assessed a Non-Sufficient Funds (NSF) fee, as well as a late fee. The company may submit the check multiple times in an effort to collect their cash, which means your bank account racks up numerous fees. For each additional month the account is delinquent, the charges increase, up to a cutoff amount of 520 percent of the original loan.
5. The Industry is Largely Unregulated
   The Federal Trade Commission (FTC), which until recently served as the governing body of the payday loan industry, has determined that all lenders have the right to set their own fees and interest rates. Payday lenders make most of their money on default loans, which are charged fees for being late, extending due dates, collections and insufficient funds. The new Consumer Financial Protection Bureau (CFPB), created by President Barack Obama, will now oversee industry regulations.

In the absence of federal guidelines, several states have enacted strict payday loan regulations that cap annual interest rates and limit the number of storefront locations in low-income neighborhoods. Federal laws do prohibit payday lenders from charging more than 36 percent interest to members of the military.

Shopping for personal loans online can be tricky. It’s much easier if you know what you’re looking for, and what to avoid. If you’re an old pro and have gotten many consumer and personal loans before, you’re probably aware of some of these tricks. If you’re new to credit, however, there are some things you should be on the lookout for:

Repayment Terms

• Lengthy loan term – usually spelled out in months, this is the time it will take you to repay the loan. Avoid lengthy terms since your interest will accumulate over a longer period, and you will pay more if the loan term is too long.
• High interest rate – could be variable or fixed. Make sure you know how high the interest rate (APR) could go if you make late payments or if the index rate changes. Avoid variable rate loans when the market is set to rise.
• Fees – are there penalty fees for things like late payments, missed payments, returned checks? What about fees for calling customer service or making a payment over the phone? Does the lender charge fees for using your credit card to make payments over the phone or on their website? If this information isn’t clearly spelled out, you can and should ask before you sign.
• Prepayment penalty – is there a penalty fee if you repay the loan early? Many lenders charge this fee to offset the interest they lose when borrowers repay the loan before it’s due. Look for prepayment penalties when applying for loans and avoid them if you can.

Credit Traps

• Balloon payments – If there’s a balloon payment due at the end of your loan, you should be very wary. Balloon payments often cause customers to default on personal loans, since they aren’t able to come up with large sums of cash. If you default, you will end up owing more interest, fees, collection costs, possibly even attorney’s fees, so avoid this trap if you can.
• Payday loans – many lenders offer both personal loans and payday loans, but payday loans usually have a much higher interest rate and there’s only one payment – a balloon payment usually due within two weeks. If you’re looking for a personal loan you can pay back over the course of a few months or a year, you won’t get this with a payday loan.

Many people get so excited to learn that they could qualify for a personal loan, they don’t stop to ask many questions. Be careful when signing up for any offer of credit, however, since you will be stuck with the deal you sign for some time. Make sure you understand the repayment terms, fees, and penalties, and always avoid credit traps.

When you’re looking around for the best deal on personal loans, there are several things you should be aware of. Most people apply only at one bank or financial institution, and sign up for the first deal they are offered. Of course you can take a few moments to consider if you think you’re getting a good deal, but how do you really know? Be sure you know what to look for in a personal loan.

Comparison Shop

If you were out shopping for a new pair of shoes, or trying to decide which car to buy, you would compare benefits, features, and price across several models. Why should shopping for personal loans be any different?

Using an online marketplace, you can find out what kind of deal you could make with several lenders. You can also visit specific lenders online to compare rates and terms. Then, if you choose, go down to your local bank or credit union and ask them if they can do better. That way, when you sign your loan papers, you’ll know you got the best deal.

Loan Rates and Terms

For most people, comparing features on new cars or features on a new appliance can be fairly easy. You know what you’re looking for, and the benefits of each item are clearly identifiable. Researching the best terms on personal loans is a bit trickier, but it’s much easier if you understand the game.

We’ve listed these in order of importance, but your situation may change that order. Make sure you get the loan that’s right for your situation, and move your priorities up and down according to your needs.

1. Get a low interest rate – the lowest you qualify for. The lower your interest rate, the less you’ll pay overall for borrowing the money.
2. Negotiate for affordable payments. Don’t commit to pay back money on a timetable that just won’t work. If the payments are too high, see if you can lengthen the loan period. You can always make higher payments to get the loan paid off sooner if you can afford it, as long as there’s no penalty.
3. Avoid balloon payments. These tricky little buggers can catch up with you later. Unless you’re expecting a large sum of money to fall into your lap, don’t agree to a balloon payment. If you’re unsure whether your loan has one, ask your lender or loan officer.

Home Solar Power Discounts – One Block Off the Grid

Mortgage Insider dishes it straight on housing and the jumbo mortgage market.

Getting a good interest rate on personal loans can be tricky. For starters, most people aren’t really sure what a good interest rate is, and they often place too much trust in loan officers. To get the best interest rate, you only need do a little research up front and then negotiate for the best deal.

Know The Going Rates

It’s always a good first step to check the interest rates others are getting on personal loans. The easiest way to find that information is to look for publicly displayed interest rates on personal loans (also known as signature loans) on various bank websites. Make a list of the rates you find, putting them in order from lowest to highest.

Some sites, such as Bankrate.com, also list the going interest rates for a variety of consumer financial products, but they don’t track rates on personal loans. You can still check to compare rates on credit cards and auto loans, though. The rates for personal loans should fall somewhere in between.

Know Your Credit Score

In addition to knowing what interest rates are doing, you’ll need to know your credit score. Lenders use credit scores to prequalify you for loans. Generally, a credit score of 720 or higher is needed to qualify for the best terms. You can still get good rates with a credit score of 680 or above, but you may not get the best terms available. With a credit score below 680, you may have difficulty qualifying for a personal loan, since it’s a form of unsecured credit.

Unlike your credit report, which is offered annually for free, you’ll have to pay a small fee to get your credit score. According to most experts, though, it’s worth the extra cost. Knowing your credit score will help you figure out what sort of terms you might qualify for before you even apply. In addition, understanding how your credit score is calculated can help you bring the number up. If you prefer, you can also estimate your credit score, although there’s no guarantee of accuracy with that method.

Negotiate For The Best Deal

Now you’re armed with all the information you’ll need in negotiations. Start by applying for a loan with the lender that offers the lowest rates, or go to your local bank or credit union. If they say you don’t qualify for the best terms, but offer you a higher rate, remember that you don’t have to take whatever they offer. Be kind, but don’t sign any paperwork until you’ve had a chance to try other lenders.

Try moving on to the next lender on your list. Their interest rates may be slightly higher, but their qualification criteria could be more relaxed, meaning you’ll get their best rate. Compare terms with the offer from the first lender, and choose the best interest rate. Of course, if you aren’t satisfied with either offer, you can continue going down the list until you get the best rate.

Have you ever been in a position where cash is so tight that you need a loan to keep yourself afloat? You will probably be in such a place one day even if you have not been there already. When you do get there, you may be strongly tempted to borrow money from a relative because you think your family will offer generous loan terms. However, you should think twice before asking a relative for a loan. In fact, there are ten major pitfalls when it comes to getting a loan from a relative.

1. Sibling Rivalry — Think again if you believe that you have outgrown sibling rivalry. If you borrow money from your parents, you may provoke strong feelings of jealousy from your siblings, especially if they have never borrowed money from mom and dad. Bankrate.com warns those who want to borrow money from their parents that siblings often believe their parents are playing favorites when their parents lend money to their brothers and sisters.
2. Hidden Strings — Relatives may say there are “no strings attached” when they lend you money, but such is rarely the case. The lender may expect you to be at his or her beck and call as long as you owe money to him or her. You will at least feel like you cannot turn down a request for help from the relative to whom you owe money.
3. Misunderstandings May Abound — When borrowing money from a relative, the line between a gift and a loan can be easily blurred. You may think of it more as a gift even if an agreement is drawn up. This may make you less inclined to repay it. Your relative may not demand a formal loan agreement. This will increase misunderstandings and even cause your lender to resent you if he or she sees you at family gatherings and you still owe money.
4. Added Pressures — Business Week notes that small business owners who borrow money from relatives face many extra pressures in addition to the demands of starting a business. If you have never run your own business before, do not borrow money from relatives for your company unless you have exhausted all other lending options.
5. Awkwardness — Family gatherings can be awkward enough, but the discomfort you feel around oddball relatives will increase if you have turned to them for a loan.
6. Loss of Relationship — Despite good intentions, you may find yourself unable to pay off a loan. If you have borrowed money from a bank or other creditor, filing for bankruptcy can help you if you are completely unable to repay your loan. But if you borrow from a relative, you might lose the relationship forever if you cannot give the money back to your lender. At the very least, this possibility must be discussed when you ask for a loan. That way, you can take steps to avoid it.
7. Loss of Reputation — Those who borrow money from their in-laws risk losing whatever esteem they might have in the eyes of these relatives. You are probably not good enough to be the spouse of their child anyway, and asking them for money will only confirm their suspicions. You may also find out the real meaning of the term monster-in-law if you borrow money from one or both of your spouse’s parents.
8. Business Interference — The small business advice section of Chron.com notes that many family members who lend money to relatives for a small business will feel like stakeholders and try to interfere with the company’s operations. That can prove disastrous.
9. Gossip — You might think borrowing money from a relative is a private affair. Unless your relative is exceptionally good at keeping a secret, however, the whole family will probably find out about your loan even if you do not want that to happen.
10. Financial Hardship for the Lender — Relatives are unlikely to turn down your loan request even if they lack the money to fulfill it. Therefore, you may inadvertently cause relatives financial hardship if you borrow money from them.

Borrowing money from a family member will bring out his or her true colors, which may be ugly.

Bankruptcy can be a helpless time in a consumer’s life. The stigma attached to bankruptcy is that you lose everything and cannot get credit for 10 or more years. The truth about bankruptcy is a little more consumer-friendly but still pretty intimidating.

When you declare bankruptcy you work on a repayment program with the court which includes determining which of your assets you get to keep. In many cases, you will get to keep your home and at least one of your vehicles. Bankruptcy is more about re-structuring your debt so that you pay as much of your old debt off as possible and then put yourself back on the path to financial responsibility.

Some debt cannot be discharged in a bankruptcy such as back child support. But you will be left with debt to take care of when the bankruptcy goes through and you will have to pick up the pieces and get your financial life back together.

Credit Counselor

One of the difficult things that people have to do after a bankruptcy has been filed is to admit that some of it was their fault. Large medical bills, an unexpected divorce or the loss of a job are certainly some uncontrollable conditions that can being about bankruptcy. But when financial help is needed due to irresponsible spending, then there is no one to blame but the consumer.

When you file for bankruptcy, the government requires you to take a credit counseling course or see a credit counselor. This is something you should continue after the bankruptcy has been filed.

If you do not learn good credit habits, then you will find yourself staring at bankruptcy again in a few years. Seek out the help of a financial professional to get your spending under control.

Budget

Once the bankruptcy is filed and executed, your entire life will change. You will not have access to the credit that you used to have, you will have settlements to pay off and you will still need to pay the bills that keep your household going. That is why you need to establish a personal budget to help you spend and save money.

One of the big misconceptions about the period after filing for bankruptcy is that all spending must stop. That is not the case and it is also impossible. To survive in our society, you must spend money. The key is to develop a budget that helps you spend wisely and also helps you find money to save on a regular basis.

Rebuilding Your Credit

Should you be concerned about your credit right after the bankruptcy is filed? Yes, you should. At some point in the future, you will need credit to buy a vehicle, rent an apartment or get car insurance. A bankruptcy does not mean that your credit is frozen forever. It just means that you are on a court-appointed payment plan for the next 10 years.

Rebuilding your credit after a bankruptcy is a slow and deliberate process. The first thing you should learn is to seek out your own credit opportunities and not fall prey to con artists and criminals. In other words, do not sign anything until you know exactly what you are getting into.

The first step is to get a secured credit card that requires you to have money in a bank account to back up your purchases. Do not overdraw the account, but use it as often as you can. Over time and with good spending habits, the credit company will offer you a small line of credit that you can rebuild into a stronger credit rating.

Cash

One of the good habits you will want to get into after a bankruptcy is to start using cash more often. Over time, you will learn good spending habits that will help you to avoid another credit disaster. But while you are readjusting your buying patterns, you should learn to buy only what you can afford to buy with cash.

Rather than renting a computer, you should put the money you would spend on rent into a savings account and buy the computer outright after a few months. Learn to save or do without to break the dependency on credit.

Bankruptcy is not the end of the world. But it does require you to change your spending habits. If you make the right moves after a bankruptcy, you can start building good credit sooner than you think.