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Think twice before applying for a payday loan

If you have been following our blog, you are familiar with the pitfalls associated with borrowing money from payday lenders. On the surface, this option may seem a safe one because the loans are capped at $1500 with fees or 35 percent of monthly grossed income, limited to a 90 day period and are debited from checking accounts. Problems mount when funds originally designated for repayment are allocated to purchase food, medicine, rent or other basic living expenses. Individuals required to renew their loans can be assessed administration fees in addition to paying interest rates as high as 565 percent. In Wisconsin, there is no cap on the annual interest of payday loans.

Supporters of the payday industry claim that the businesses provide a source of revenue for a group of people whose credit rating or low income prevents them from securing traditional bank loans. They contend that the individuals seeking short-term loans know the risks inherent in applying for such a loan and that most customers are able to repay the debt in the appropriate amount of time.

In spite of reading the financial risks associated with applying for a payday loan, if you feel that you have no other option for securing funds, you should know what rights are afforded to Wisconsin residents.

The following tips can help you to safeguard your finances when approaching payday lenders:

Documentation required

Payday lenders are required to provide forms at various stages of the lending process. Upon requesting a loan, you should receive a pre-loan disclosure and the Wisconsin Guide to Payday Loans. If circumstances prevent you from paying your loan on time, your lender must give you a repayment plan offer. This form will then be filed. Wisconsin law mandates that the disclosures be made available in either the Spanish or English language.

Best option

In most cases, the easiest way to secure cash will not provide the best long-term results. Those searching online for payday lenders will find a nearly endless catalog of businesses purporting to be payday lenders. These online options are typically the worst to entertain. Having fielded calls from people who have signed contracts with online lenders, the Better Business Bureau has given an "F" rating to many of these companies. In most instances, the online lending industry may be unregulated, so it is difficult to hold these operators accountable for illegal practices.

Financial experts recommend that those requiring the services of a payday lender look for brick-and-mortar operations in the neighborhood. Neighborhood reputation and state legislation hold these business operators accountable.

Those struggling to pay bills due to outstanding debt may find short-term relief in a payday loan. More often than not, however, securing funds in this manner drives borrowers more deeply into a financial hole. Seeking advice from a knowledgeable bankruptcy attorney can be the first step to erasing the monetary burden.

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