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Shopping Around For a Loan

Before you take out a loan near you, it’s a good idea to shop around with a few lenders to make sure you’re get the best loan deals.

Check Your Credit
First, consider your credit history. It’s always a good idea to check your credit report and credit score before you shop for a loan. That way, you can gauge your likelihood of getting approved without actually applying for the loan. Each loan application puts a credit-score damaging inquiry on your credit report and can hurt your chances of getting a subsequent application approved. Check your credit report for any errors and dispute them before putting in your loan application. Make sure you’re current on all your accounts, even debt collections, to improve your chances at getting improved.

Shopping Around For a LoanFind Out the Cost
Get the cost information – interest rates and fees. As you discuss the loan with a loan officer, make sure you completely understand the cost of the loan. The Truth in Lending Act requires lenders to give you a disclosure that outlines the interest rate and fees of the loan. It will include details about the annual percentage rate (APR), finance charge, amount financed, and total payments by the end of the loan. Each of those factors is important. Look for a low interest rate loan with a low total payment amount.

Know the Life and Payment Amounts of the Loan
Get the length of the loan and monthly payments. It’s important to know how long you’ll be paying on the loan and how much you’ll be paying each month. You want to afford your monthly payments, but keep in mind the lower your payments, the longer you’ll pay on the loan, and the more you’ll pay in interest charges.

Get Loan Quotes
Compare quotes from different banks. Don’t stop at a quote from a single bank. Chances are, there’s a better deal out there, but you don’t know until you look. Get quotes from at least three different banks and compare the terms of each. Unless you’re shopping for a mortgage, you should do your loan shopping as quickly as possible. Mortgage loan applications made within 30-45 days won’t affect your credit score, but other loan applications will hurt your score as soon as the inquiries appear on your credit report. You can always explain away inquiries by letting lenders know you’re shopping around. If you have a solid credit score, additional inquiries might not hurt too much.

Negotiate the Best Loan Terms
Negotiate a better deal. If you like a bank, but don’t like part of the deal you’ve been offered, try to negotiate a better one. It’s easier to negotiate if you have good credit and a steady income on your side. Let the loan officer know you’re looking for the best deal. Don’t be afraid to turn down a loan offer that is outside your price range.

Loan Discrimination is Illegal
Lenders must give your loan application fair consideration. The Equal Credit Opportunity Act, a federal law, prohibits discrimination based on race, color, religion, national origin, sex, marital status, age, participation on a public assistance program, or exercising rights under the Consumer Credit Protection Act. If your loan application is denied, the lender should send you a letter letting you know why. You may be able to fix the reasons and reapply.…

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Are Payday Loan APR Caps Irresponsible? E&Y Study

dunce picWhen it comes to payday loans, there are people with some very vocal opinions. Some consumer advocates claim that payday loan lenders are unfair, that they take advantage of consumers who are in a tough financial spot, and that they aren’t offering a responsible product to the market.

Recently, E&Y set out on a national study to determine whether the pricing of payday loans was fair and reasonable. The findings of the study may be surprising to some, and suggest that the issue of payday loans isn’t as cut and dried as opponents would like for you to think it is.

The study found, among other things, that attempts by state legislatures or other governmental entities to create and impose an artificial cap on the rate for payday loans would have a detrimental effect. It would, in effect, eliminate a product that millions of Americans use to address short-term credit needs.

In addition, the study found that, on average, payday advance lenders charge just over $15 for each $100 lent to consumers. The average cost to the payday loan store was just under $14 for every hundred dollars loaned, meaning that their profit margin isn’t outside normal standards for retail or financial businesses. The average profit margin was 9.1 percent before taxes.

Lenders in the payday loan industry face far greater risk than those lenders who offer more traditional loans that require a form of collateral. Around 27 percent of the cost of each loan went toward bad debt.

Reducing the fees that payday loan lenders charge, then, would greatly impact the ability of these businesses to function. The vast majority of the more than 10,000 payday lenders around the nation operate within the percentages for profit margins outlined above, and would not be able to keep their doors open if rate caps were put in place.

A typical payday loan last for two weeks at a cost of $15.26 per $100 borrowed. This works out to an annual percentage rate of 397 percent. That rate sounds astronomical, and would certainly be if the loan were for a term of one year. The very idea of an “annual” percentage rate for a short-term product like this is, at best, misleading.

Incidentally, some of the proposals in state and federal legislatures would cap the APR at 36%. According to the E&Y study, this kind of a cap would make payday loans unprofitable. This would force the lender to stop offering the product.…

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