A proposed bill that recently passed in the Indiana state House, in a 53 to 41 vote, could make payday loans even less of a good deal for borrowers if it passes through the state Senate. If it passes, this type of loan could carry steep annual percentage rates – up to three times the current loansharking rate for a total of up to 222 percent per loan.
What the Current Law Stipulates
Right now, Indiana state law regulates the interest rates of payday loans, capping interest rates at 72 percent annually. But payday lenders can get around that restriction by offering a shorter-duration loan that often must be paid back in two weeks.
Because of the loophole, the Indiana Institute for Working Families calculated the typical payday loan has an APR in excess of 300 percent.
What the New Proposed Bill Would Do
The bill would create a new category of loan, which would have a longer term than the usual two-week payday loan. Under this new bill, the terms of the unsecured consumer installment loans would be able to range from three to 12 months in repayment time. The amounts that could be lent out would be from $605 to $1,500.
The proposed bill had plenty of critics in the House who opted not to vote for it. Democrat Pat Bauer, who represents District 6, was one of the politicians who cast a vote against the bill, saying it was passed because of the influence lobbyists have with some politicians in the state.
“It’s a shameful example that people’s lives are going to be destroyed further because of this,” Bauer said in an article on Southbendtribune.com.
A number of charities, organizations for veterans, advocacy groups, and religious groups are against this bill. Many people and organizations feel that payday loans, particularly those with a high interest rate, prey on financially unstable borrowers, setting them up for a cycle of inability to repay and repeated loans.
Proponents of the bill said it will be yet another option for borrowers who need money in a hurry. Supporters, like Rep. Dale DeVon of the 5th District, say the bill has safeguards in place to protect borrowers from facing financial ruin because of the loans.
Those provisions include only allowing borrowers to get one payday loan at a time. Another safeguard in place would stop lenders from charging a monthly payment of more than 20 percent of the borrower’s gross income for the month.
What Alternatives Do People Have to Payday Loans?
People who find themselves habitually dependent on payday loans have alternatives to consider if they’re interested in ditching the high payback costs of these types of loans. There are reputable personal loan lenders that offer longer repayment terms and much more reasonable interest rates/
Some institutions offer personal finance classes or tips, and borrowers can also seek out credit counseling to see if it would provide any benefit to them. People who are having trouble making other monthly payments might want to consider contacting their lenders or utility providers to work out alternative repayment plans or discounts.
Author: Andrew Rombach
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