Church v/s Payday Loans

Church vs Payday Loans

For many low and moderate income households, a single financial emergency is enough to disrupt their entire sense of financial stability. With little or no cushion set aside in the form of emergency savings, unexpected expenses such as severe illness or major car or household repairs can become major disasters. In desperation, many individuals turn to payday loans to deal with financial emergencies.

But payday loans represent a trap. According to a 2011 report by the Insight Center for Community Economic Development, payday loans drained more than $1 billion from the American economy that year. Repayments for payday loans diverted more than $770 million away from consumer spending and translated into 14,000 lost jobs. More than 56,000 bankruptcies related to payday loans removed another $169 million from the economy, according to the report.

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A Holy War Against Payday Loans

Payday loans are not only a menace within the United States. High-interest short-term loans have “hopped the pond” to the United Kingdom. Payday loans gained popularity during the worldwide recession that gripped much of the world during the early years of the 21st century. According to the UK Office of Fair Trading, the payday loan industry in the UK was valued at £2.2 billion ($3.4 billion) in 2011 and 2012. That figure represents a significant jump from the industry’s estimated worth of £900 million ($1.4 billion) as of 2008 and 2009.

One of the biggest UK payday lenders, Wonga, charged an astounding 5,853 percent annual interest on its payday loans as of July 2013, according to a CNBC report. As in the United States, low-income borrowers in the UK were becoming trapped in short-term, high-interest loans that they could not afford to repay.

As the Archbishop of Canterbury and head of the Church of England, Justin Welby, also sits on the UK’s Parliamentary Banking Standards Commission. Welby has made it his personal mission to rid the UK of predatory payday lenders like Wonga. Welby began organizing lower-priced loans with reasonable repayment periods administered through the Church and credit unions during July 2013 as alternatives to payday loans. These loans represented his self-stated mission to “compete” payday lenders out of business. Welby’s statements come a month after the Church of England was forced to admit it still had a stake in payday lender Wonga.

Nonprofits, States, And The CFPB Vs. US Payday Lenders

Despite the recovery and general improvement of the economy, payday loans still pose a threat to low-income individuals. In the In the United States, 69 percent of payday loan borrowers used the money to cover basic expenses such as rent, according to a 2012 report issued by Pew Charitable Trusts. Four out of five payday loans are rolled over or renewed because borrowers were unable to pay them in full on the original due date, according to a 2014 report issued by the Consumer Financial Protection Bureau.

The CFPB along with the federal government several states have made efforts to rein in payday lending. The 2007 Defense Authorization Act limits interest rates on loans marketed to military personnel and their families to 36 percent. Fifteen jurisdictions ban brick and mortar payday lenders from operating within their borders. The CFPB has begun to monitor payday lenders operating within autonomous tribal enclaves.Nonprofit organizations have started to organize nonprofit short term lenders to act as alternates for desperate low-income borrowers who would otherwise turn to payday lenders.

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Personal Loans Vs. Payday Loans

There are alternatives for borrowers with bad credit who need cash fast. Borrowers with bad credit are not going to qualify for the single digit rates prime borrowers can expect, but they can do better than two-week loans with 300% to 700% APRs. And borrowers who establish and maintain on-time repayment records are rewarded by receiving lower interest rates on future loans. Most personal loan lenders also report to credit bureaus which can raise borrowers’ overall credit profiles and FICO scores. It’s a win-win situation!

Tired of being turned down by lenders? SuperMoney’s personal loan database allows you to filter lenders by their eligibility requirements. Instead of an endless spiral of debt, personal loans can help you improve your credit score and qualify for better loan terms in the future. Compare lenders and make sure they report your payments to credit bureaus. If you are regular and on time with your payments, your credit score can improve.

Strapped for cash but not ready to pay 400% APR? Consider these payday alternatives