Payday Loans 2020: Updates to Know Before Applying

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( — August 25, 2020) — Many people search for financial assistance during challenging times. They seek quick lending decisions that will help them stay financially afloat and finance short-term gaps. Payday lending is very popular these days.

Thousands of Americans turn to this fast borrowing method to make ends meet and cover unforeseen expenditures. While this may be an easy solution for the short term, e-transfer online payday loans Canada or in the USA require responsibility and knowledge of their rules. In this article, we are going to share with you some important updates about payday loans in 2020 that you should know before applying.

Why Are Payday Loans Widespread?

This lending solution has gained popularity over the last decade. The reason for that is the growing number of monetary issues in people of all ages. The financial crisis in many countries as well as in the USA means consumers need to search for different ways to get extra financial assistance.

Many people tend to live from paycheck to paycheck and can’t afford to pay even $400 of unforeseen costs. It means the majority of people don’t have any savings set aside for a monetary shortfall. So, getting a payday lending solution seems like a reasonable decision. Yet, there are certain rules, requirements, and updates to learn before you decide to sign a contract.

Requirements to Qualify for Payday Lending

This alternative lending solution has become common among American consumers due to strict demands and tedious application process in conventional lending institutions. When you apply to a local bank or credit union, you will have to undergo various procedures and submit multiple documents in order to get qualified. Traditional crediting agencies want to make sure a borrower has enough means to return the funds on time.

In addition to that, banks and other conventional finance-related service providers are more eager to cooperate with consumers who seek solutions for the longer term. They tend to approve applications for larger sums so that they earn more in interest. On the other hand, interest rates at payday lending stores are typically higher as they accept requests for much smaller sums.

Payday lending is a useful solution for the situations when you are short of cash but don’t need a big amount of money. Usually, consumers opt for this decision to:

  • fund an expensive purchase;
  • cover urgent medical bills;
  • get extra cash until the next payday;
  • finance overdue utility payments;
  • fund a vacation;
  • finance wedding costs.

This solution isn’t meant to assist with big sums and long-term solutions. You can apply for it to obtain a few hundred dollars for a couple of weeks (generally until the next payday).

Updates for Payday Loans in 2020

Now let’s talk about the news and updates you need to take into consideration before you decide if this borrowing method is suitable for your situation. The “Executive Summary of the July 2020 Amendments to the 2017 Payday Lending Rule” by the Consumer Financial Protection Bureau (CFPB) revealed the final rule on payday regulations to make certain both creditors and consumers understand the new amendments.

1. The prior summary of amendments in 2017 stated that creditors had the right to verify that consumers could afford to repay the debt on time by checking their background, income, student loans, and rent. They could reject or approve the request based on these criteria. Hence, if a borrower didn’t have a regular decent income and had too much student debt, their application could have been rejected.

However, the Trump administration has already blocked these regulations. Starting from 2020, creditors aren’t required to verify the above-mentioned data and check whether a borrower can afford to repay the debt. It is meant to offer more opportunities to consumers across the country so that more applications are approved and more people gain access to this quick funding.

2. Another important rule that remained without changes in 2020 is the rule that restricts payday creditors from attempting to withdraw cash directly from a consumer’s checking account. The reason for this rule was that some lenders tried to take their funds by getting access directly to the borrower’s bank account. This way, consumers are now more protected from having to pay overdraft charges and ruining their credit ratings.

Some financial experts suggest these amendments can affect the ability of consumers to pay their debt on time and might have serious consequences. “By making these changes and allowing consumers to apply with no background or income checks, the CFPB makes a big mistake that may leave 12 million American citizens unprepared without the ability to afford APRs of up to 400%,” mentions Alex Horowitz, a senior research officer with Pew Charitable Trusts’ consumer finance project.

Can There Be Problems with Payday Lending?

The Financial Health Network released a U.S. Financial Health Pulse 2019 Trends Report and found out that only 29% of citizens in the USA are living financially healthy. This means the whopping majority of consumers tend to live paycheck to paycheck without having any savings in their bank account. These statistics show that a growing number of Americans are looking for short-term financial options and lending decisions to help them remain financially afloat.

About 33% of Americans have lost their jobs during the coronavirus pandemic. Loss of regular income makes people seek alternative financial sources and apply for lending solutions. Approximately 3% of respondents stated that had to borrow extra funds in the form of payday loans. While it’s relatively easy to take out this lending option, it’s much harder to pay it off. Many people are trapped in a vicious debt cycle as they accept burdensome fees and APRs of 400%. 

It is required to provide basic personal, banking as well as employment details to proceed to the approval process and obtain the additional financing through payday lending, but it may take a long time to recover from taking this debt and becoming financially free again.

You need to compare rates at several lending stores or pawn shops, do your research, know your rights, and the above-mentioned legal regulations to have a pleasant borrowing experience.