National Payday Loan Blog

Curently in the Lead:

How is a Tax Advance Loan Different from a Payday Loan?

5512347305_20dda91167_zIt’s Tax Time!

Depending on what kind of tax bill you are anticipating, you fall into one of two camps: those who will have to pay, and will thus put off filing for as long as you can, or those who will receive a refund. For those folks, you can’t possibly file fast enough, and that refund – no matter how fast it arrives – is still too slow.

Some people have come to depend on that annual tax refund as much as they do a paycheck. In many cases, the money is spent (or promised) before it ever touches the person’s bank. A difference of a few days could have consequences, causing financial trouble if that refund check is delayed.

Which is why, many years ago, something was invented to address the problem: Refund Anticipation Loans, or Refund Anticipation Checks (which is becoming more common now that tax preparers don’t want you to think of it as applying for a loan… which you are)

But the real question is – are these refund advances a legitimate service you can count on, or are they a glorified scam?

A Brief History of the Refund Anticipation Loan (RAL)

Before the 1980s, there was no electronic tax filing, and no refund anticipation system. You filled out the forms, mailed them in, and waited for a hard check to be delivered by the post. There were no other options.

Once e-filing began, tax preparers began rolling out programs to get their clients a tax return within 24 hours. They did this not by magic, but by essentially giving each client a loan, using the impending tax return as collateral. The client would pay a refund fee (in addition to paying for the preparation of the tax return), and be “given” their refund money, which was a loan that was repaid by the preparer keeping the tax refund when it arrived.

It didn’t take long for people to start gaming the system, and by 1994 the IRS advised against the practice. But the idea had been floated, and people liked the idea of not waiting for their money, so Refund Anticipation continued. Not only through tax services, but also through major banks, credit unions, and even some seasonal businesses that only existed during tax time to provide this service.

6921643174_29ae238224_zFederally regulated financial institutions were forced by federal regulators to stop issuing Refund Anticipation Loans in 2012. That meant a great deal of known and trusted establishments were out of the RAL game.

Banks may be done with RALs, but Americans still want them, and they are as popular as ever.

Should You Use a Refund Anticipation Loan?

This kind of loan, not unlike a payday loan, is basically just a short-term loan with higher APR than a bank would charge. As with payday loans, Refund Anticipation Loans are widely maligned and viewed as scams or rip-offs.

But the truth of the matter is that there is nothing inherently sneaky about a RAL. You agree to terms, pay what you need to pay, get your refund early, and move on, right? In theory, that’s how it always works, but you need to very cautious about where you got for this loan.

The three largest tax preparation companies in America all offer their versions of a refund advance. These are considered the safest places to go for your RAL, as they are established national companies with long histories. Small independent tax preparers also often offer these loans, but the veracity of these companies would need to be verified on an individual basis. Finally, many payday loan companies also offer these kind of loans. These lenders usually are in business year round, but only offer RALs during tax season.

Do your research, find out if the tax company is reputable, and what the terms are for the refund advance. A refund advance is just a tool… but make sure you know who is holding that tool before you ask them to use it!

 

Arizona to Revive Payday Loans as “Flex Loans”

6865889457_5aedba70d6_zReversing years of legislation on the matter of consumer loans, the Arizona House Commerce Committee just voted to approve a new proposal to allow state resident access to a new kind of loan. Called “flex loans,” they have been described as “payday loans version 2.0.”

Supporters celebrate the vote as a boon for the working class people who often times rely on these loans, because banks will not loan them money.

Opponents point out that Arizona decided to get rid of payday loans over seven years ago, and that flex loans are just payday loans with a fresh coat of paint.

Who’s right? Could they both be right? (more…)

Fees vs. APR: Payday Loans Explained

6305125858_54c530aa65_z           Banks and most mainstream lenders use APR (annual percentage rate) as measuring stick to compare their different loans. APR is a way of calculating the amount of interest you pay on a loan over the course of one year.

Smaller loans have shorter repayment windows and higher APR, while large loans like mortgages have much lower APR, with perhaps 20 years as a repayment window.

But there are almost no mainstream banks or lenders that offer the small loans many people rely on. Even the small “personal” or “signature” loan at a bank will be for several thousand dollars. Not only are they hidden behind a maze of red tape, but for many borrowers it is just too much money. Even if they had the credit rating to be approved for $5000, they don’t want that much.

That is where payday lenders come in. Cash advances, or payday loans, are micro-loans of $100 to $500, designed to be almost immediately repaid.

As part of an ongoing smear campaign, mainstream banks attack payday lenders for their high range of APR, while ignoring one key fact: payday lenders don’t base their business on APR like banks do. It’s apples and oranges.

For a payday loan, you pay a fee for the amount of money you borrow (usually 25% of the borrowed sum). APR doesn’t apply because these loans are for small amounts with small repayment windows – a typical payday loan is for a few days, up to as long as a month. As they are based around the borrowers pay schedule, they become due on the customer’s next payday.

apr_disclosure`            Thusly, when a payday lender is attacked for having “1000% APR” it is misleading. In truth, they paid a 25% fee for the loan. If by some chance they do not pay that loan back for a year, then yes, they will have paid a large amount of money to repay a very small loan. But it still isn’t “1000% APR” its “repeated payment of the same fee because they did not repay the loan when they agreed to do so.”

A perfect example of this principle is found at the Redbox movie rental kiosks.

You pick out a movie, select it, and swipe your card. You have agreed to rent this movie for $1.25 per night. If you do not return the movie within 24 hours, you are billed another $1.25.

You keep the movie for 10 days, return it, and then claim “the Redbox charged me $12.50 to rent a movie.” Of course it didn’t – they charged you $1.25 per rental, and you simply did not return the movie.

If you keep the movie for 30 days, you will have paid $37.50 for a rental. Which is a ridiculous number, but also isn’t accurate of the typical Redbox transaction, which costs… yep… $1.25.

And so it goes with payday loans. The typical payday loan transaction is for a small amount, and repaid quickly for that same amount plus 25%. It’s not 1000% interest, never has been, never will be.

5 Things Payday Lenders Don’t Want You to Know

13048316734_e8e30382ed_zThere are thousands of payday loan stores across the US, with hundreds more on line, and they all have one thing in common – they want to lend you money.

Many of them have something else in common: they don’t want you to think too much about borrowing from them. They proclaim how “fast” their loans are, because they want to get you on the hook before you know what you are agreeing to.

While reputable lenders have nothing to hide, the shady lenders have a few things they DON’T want you to know. (more…)

Payday Loans Going Global

3603441685_bfd704c4f0_zThey say there is nothing new under the sun, but in the bigger picture, that simply isn’t true at all. Example? Payday loans.

Although there have been independent lenders for as long as there has been money, what we call payday loans or cash advances actually began very recently. The first payday loan stores opened in Kansas City in the early 1980s, after Congress deregulated the lending industry and opened the door for private lenders to set their own interest rates.

This new kind of lender did well at first, and within a decade there were 200 different payday lenders in the US.

Since then, the industry has grown and expanded to an amazing degree: by 2006 there were over 20,000 payday loan stores, and a rising number of online lenders. The total loan volume was over $28 billion.

Payday loans exploded in America, and quickly started reaching out into other countries. From the handful of small lenders in Kansas City, the payday loans business has gone global, and generates hundreds of billions of dollars worth of loans. (more…)

Fringe Banks Serve Canada’s Working Class

2359387451_93caf5bf60_zIn Canada, just like in the States, lower-income communities are served by a large number of independent lenders, often operating out of store front businesses. These lenders cater to the needs of those people underserved by the traditional, mainstream banking industry.

They are called Fringe Banks, and specialize in low-amount, short-term loans that appeal to working class people often subsisting paycheck to paycheck (more commonly called payday loans). They are growing in number, and causing a new round of political discussions in the Great White North.

Are the Fringe Banks the problem? Or are they simply a response to a problem in the financial world? (more…)

Ohio Senator Proposes Tax-Advance Loans

4481407487_8bac9b8710_zSherrod Brown, the Democratic senator from the state of Ohio, has revealed a plan to give his constituents a financial break for tax season. His proposal is described as “an alternative” to payday loans, and is generating excitement all over Ohio.

Payday loans and cash advances are of course offered year-round, but during this time of year there is always a proliferation of “tax advance” or “refund advance” loans. These are short-term, higher-interest loans that unlike payday loans are not based on income but on the potential tax return check. Borrowers are, in essence, paying a fee to have access to their tax refund money early.

Senator Brown’s plan would eliminate the middle man (the loan brokers) and directly advance the tax refund to the borrower early. There would be zero interest, and zero fees.

The program is based on earned income tax credits (EITC), and would allow eligible taxpayers to advance up to $500 from their refund. (more…)

The Fed Writing New Rules for Payday Loans

14788228479_d176774134_bIn a story recently published by the Wall Street Journal, federal regulators are seeking to move forward with creating national rules and regulations for payday lenders.

Payday loans are regulated currently on a state level, and there has never been federal oversight of the industry. The Consumer Financial Protection Bureau wants to change that, and provide concrete, enforceable laws to govern the controversial lending industry from coast to coast. (more…)

2014 in Review: The Year’s Best Loan Blogs

5319988023_3609d62dcc_oAs the premier blog for all things payday loan related, we strive week after week to give you not only the hot news about cash advances, but also a glimpse ‘behind the curtain’ into how and why these loans are so important. Not only to you, the borrower, but to America and its economy.

2014 was a controversial year in many ways, but it was also a banner year for payday loans.

Today we take a look back at the Ten Best Blogs of 2014. Enjoy, and we hope all of you have a fantastic and prosperous 2015. (more…)

The 10 Best Blogs of 2014: Fun and Finance

15896233619_af0dc7a7e2_zFun and finance aren’t known for going hand-in-hand.

Financial blogs, by and large, are rather dry. Sure they are informative, and can help you in your day to day life, but they aren’t usually very entertaining.

But it doesn’t have to be that way. Some writers can take a snore-inducing topic like the history of modern banking, or student loan debt in America, and actually make it fun to read.

Presented here, for both your education and entertainment, are the ten best blogs we posted this year.

(more…)

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