High Rate Loans

Payday lending is a form of short-term lending without collateral to people with little or no liquidity, or a bad credit rating. Pay Day is a generic term. Companies in this form of lending go by other names, such as Cash and Go, Advance Pay, Loan Up and Cash Carry. Sometimes these are also called Accommodation Loans or Instant Cash.

Whatever the name, here is a statistic to show how prevalent they have become in a few short years (probably last ten years) in the US. There are some 22,000 companies in Pay Day business, making $40 billion in loans and collecting $6 billion in interest and fees. This number may already be dated, since more companies are coming on line.

REASON FOR PAY DAY POPULARITY

Here are the reasons:

As a business model, it is proven to be resilient and profitable. Diverse portfolio, small exposure, short term nature of the loan and catering to a sector few traditional lenders touch.
With Americans’ incomes not keeping pace with inflation, and increasing illegal immigration, there is growing need for Payday type loans as more and more people live from paycheck to paycheck.
While there is State level regulation on Payday practices, this form of lending is highly unregulated and as yet unchecked in any real form by Federal government. And State supervision is spotty. So no wonder new Payday type lenders are cropping up all over.
Because of small loans and not much oversight, entry barriers are low.

PROS AND CONS

Pros:

Easy terms, no collateral
Negative credit history is not an obstacle
Very local
Caters to a segment of population which has no other alternatives to cover their expenditures or budgets

Cons:

Very high rates of interest (although many States have Usury laws, so Payday lenders skirt it by calling these “fees” or “service charges”
Addictive. Since money is easily available, there is less incentive to save and forgo certain expenditures
Does not improve borrower’s credit history–whereas getting credit from a traditional source, even a store, and paying it down regularly will actually improve your credit rating and open up other doors to borrowing

WAYS TO AVOID PAYDAY

Get in the habit of budgeting your income and expenses and do it conservatively. This will help you manage your cash flow and enable you to predict it—that way you can find ways to either boost your income or reduce expenses. It also will help you to prioritize your expenses
Diligently note down your expenses
Try to put internal limits on when to use a credit card. I advised someone to not use a credit card for single-shop charges below $25. It is amazing how quickly she realized money was flowing through her hands. She never appreciated this when flashing credit cards, and making minimum payments.
Pay off all or most of credit card balance each month. Credit card companies are only a slightly softer version of Payday lenders.
I prefer loan from a friend or from family although I realize it is not always possible
Treat Payday as the absolute last resort, before bankruptcy. That will help you strengthen your resolve to avoid them as long as possible
Get Credit Counseling. Like someone who wants to lose weight must seek professional help, if you are unable to balance your checkbook, you need to see a professional financial advisor.
See if you have an asset that can be monetized. It may be jewelry you do not use or a house bigger than you can afford. This is the absolute first step to repairing your financial health.

Repair Damaged Business Credit

Obtain Business Reports to know what’s on your business credit you should obtain business credit reports from the main business credit reporting agencies. Business credit reports are offered by Experian, Dun & Bradstreet, and Equifax. You will first want to get a copy of your business credit reports to see what is being reported.

You might have already heard of the FCRA. The Fair Credit Reporting Act outlines consumer’s rights to dispute inaccurate information on their credit reports. But it’s essential to know that this law does NOT apply to credit repair. There are currently no laws which outline business owner’s rights regarding credit disputing. The FCRA also requires credit issuers to notify you of what bureaus they pulled your credit data from to determine your denial for financing. In the business credit world this is not the case, you rarely ever know the source that pulled your business credit or the reporting agencies they pulled it with.

If you see accounts or details you don’t recognize or you feel are inaccurate, request a debt validation for that account using a debt validation letter. A debt validation is where you solicit the creditor for verification of the account details they are reporting. They will typically send you back details of your account that they are reporting. The FCRA and the fair debt collections practices act apply to consumer debts, not business debts. So you can send a debt validation letter, but the creditor is not required by law to respond to your dispute.

When sending a debt validation request, your request must be sent to the creditor in writing. Also insure you dispute the debt with the credit agencies if the creditor doesn’t respond to your request. If no response is received within 30 days of mailing the letter directly to the creditor, then you should then dispute the account with the business reporting agencies.

Based on how you pay your bills. If you pay the majority of reported accounts on time or early, you will have a good score. Most business owners have little to no credit reporting. So, even one negative account can have a BIG impact on their business score. It is essential that you continuously build your credit profile just as you do with your consumer credit. One of the best ways to battle negative information on your report is to offset it with LOTS of positive information. So continuously build your business profile just as you do with your consumer credit.