Payday loans are quickly becoming one of the most popular options for those in need of some fast cash. The majority of people only use payday loans as an emergency option to cover days when they have no other day-to-day income, but that doesn’t mean these loans don’t come with a host of problems ranging from a high crime rate to even lower rates of success. Here are the new rules for lenders, because it’s time to start thinking about more than just your bottom line.
A Smaller Loan-To-Value Ratio
During the 60’s, the Lending industry was known for offering loans for an amount much higher than a borrower’s salary. That might sound crazy today, but people were still buying large homes and cars that were almost impossible to afford on a monthly basis. Because of this, lenders had to change their rules and regulations in order to ensure their clients wouldn’t default on too many accounts at once. Nowadays, The Lenders are not allowed to offer more than one fifth of a person’s take home pay per loan term. This change has made payday loans more popular than ever, because many people can now afford an emergency loan with a smaller amount of money. But on the other side of the coin, this also means that lenders are making less money when you look at their interest rates.
Annual Percentage Rates
Another new rule is that lenders are no longer allowed to include simply a flat rate when describing the annual percentage rate associated with a loan. Instead, they must list both their flat rate as well as their non-flat rate so that you have access to all of your options before signing anything. It seems like a small change, but it’s actually been one of the most important ones in the history of lending legislation.
Higher Minimums
Lenders are no longer allowed to require that you live within an area of the country in order for them to check your credit score. If you’re trying to take out a loan from a lender outside of your local area, this really could be a big problem. The requirements for getting approved based on income and credit scores have changed drastically over the past decade. It’s now possible to get approved with not so much as $100 in your bank account, but there’s still no guarantee that lenders will approve what they see as a good risk.
Higher Rates For Bad Credit
Lenders cannot make their rates any more expensive than those on loans with bad credit ratings. This ban applies to both the interest rates on loans, as well as the amount or frequency at which you have to pay them. The lender cannot ask you to make a payment more often than every two weeks when your payments are too high for your current income. Payday loans are much easier to get approved for if you can produce a score of 640 or higher, but that doesn’t mean lenders must charge you more than they would if you were in better shape.