For South Dakota consumers, payday loans used to be available at storefronts, but since late 2016, this access and annual interest rates have been cut.
Following an intense campaign highlighting the payday loan cycle borrowers endure with extreme fees and interest, South Dakota voters approved the Payday Lending Initiative IM 21 in November 2016. This measure limited the annual interest rate of short-term loans (one week or a month) to 36 percent. Soon after its passage, South Dakota’s short-term loans became unprofitable, and today this industry is almost nonexistent in the state, reported KELO.
While IM21 curtailed high-interest payday lending, proponents of the measure believe people needing cash quickly haven’t gone away; they are just going to sources offering lower interest rates such as credit unions and banks, employers, or even family. In reality, many nonprime borrowers in South Dakota aren’t doing that.
High-Risk Emergency Loan Options
Although South Dakota limited payday lending, it didn’t outlaw it. And some borrowers are hitting online lending agencies found through Google searches under “payday loans”—a familiar option for South Dakota consumers, according to KELO. This alternative carries risks such as a lack of oversight and inconsistent regulation; however, this is a national issue with these lenders.
A report by the Consumer Federation of America found that online payday loans are very high-risk; they are also predisposed to corruption. Furthermore, online payday lenders can legally get access to borrowers’ bank and credit union accounts, making deductions without explanation.
Another quick cash option is pawn shops. While operating similarly to payday loans, borrowers are required to put up collateral. Pawn shop contracts are between 30 to 40 days and interest rates are typically 20 to 25 percent over the month, or 240 to 300 percent APR. South Dakota pawn shops have undergone increased transactions since IM 21’s passage, with one merchant seeing a 20 to 30 percent jump in business, according to KELO.
These problems aren’t unique to South Dakota. In 2016, there were 22,000 payday storefronts for the 12 million consumers borrowing $7 billion. Most states (32 allow payday loans) have $500 limits with varying interest rates. While it’s a popular way to get fast cash, experts suggest these alternatives.
Banks and Credit Unions: These institutions offer small, short-term personal loans. Although credit unions usually having more affordable, low-interest loans and more flexible approval processes than banks. Shop around to review qualifications and competitive rates.
Paycheck Advance: Evaluate the risks (and potential judgments) before asking an employer for an advance. Two apps also offer opportunities for paycheck advances: Even.com, which assists in balancing uneven paychecks through interest-free advances when usual pay is lower than its average; and Earnin.com enables early access to pay based on hours already worked.
Family loan: Asking a family member can bring interest-free loans and an easier way to obtain money.
Credit Counseling: If you’re undergoing a lot of financial problems, a counselor can help analyze debt, create a budget, negotiate interest rates on credit cards and cut your monthly payments.
Author: Mike Brown
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