Payday Loans: 3 Questions?

Payday loans: these are short-term loans usually intended to cover expenses till the next payday. You get the money you need to get yourself out of the financial hole but only momentarily: indeed, payday loans, sometimes referred to as cash advance, are different from the concept of loan consolidation: payday loans are a very debated argument since the latest attempts to limit payday lending in some US states hit an early obstacle when some state legislative committees voted t to reject proposals that would prohibit lenders from charging fees that would boost borrowers' cost. nevertheless, the real question we should be asking is this:

Where are the alternatives to payday loans?

Payday loans are most of the time the only solution available to consumers with a bad credit history or who cannot find a bank willing to loan to them. On the other hand, it should be noted that most borrowers may find themselves in a position that is worse off when the loan is due than they were when they took it on; many borrowers may incur in a vicious cycle and can get trapped in a cycle of debt.
What is the solution to this conundrum?

It is important to know the facts and figures in order to be able to judge independently what is being advertised, how is being packaged and why is being offered in a certain way. A typical payday loan can be between $100 and $1500, on a two-week period and have very high interest rates, usually in the range of 380% to 900% yearly (although most of the US states have usury laws that forbid interest rates in excess of a certain Annual Percentage Rate or APR). Nonetheless, this has not stopped payday lenders who have in fact succeeded in getting around usury laws in some states by forming relationships with banks registered in a different state with no usury ceiling (and this is the case of states such as South Dakota or Delaware).

Why Payday Loans are not illegal?

In Canada the situation of payday loan is in fact different: according to Canadian law, any rate of interest above 60% per year is considered criminal. These limits curb the practice of payday loan in Canada; but what about the USA? Payday loan practice, although legal and regulated in 37 states, is still controversial, sometimes with bad public perception, and it is facing legal battles in nearly every US state and, as we saw, in Canada as well: so be careful when (and if) you wish to go the way of payday loans! Remember to be careful also if you are considering other completely different loans such as student loans (or student credit cards) since student credit card debt can be very dangerous... but this is another story.