The history of Michigan shows the limit of the payday loan. The law tried to limit the interest rate cap to 25%. In 2005, Michigan became the last state to allow payday loans at 340% APR or higher. But nowadays this state is in the list of states colored red on the credit card. When a customer submits a request Online Payday Loans, the APR will be 370%.
As a result, the Michigandans face a payday loan debt trap when they make a short term loan of $ 300 (the average is 14 days). Today the citizens of this state believe that only a new accepted interest rate cap of 36% will help to get out of the credit trap.
The opinion on interest rate caps was not unanimous. Some of them believe that these restrictions protect consumers from access to quick credit. Others claim this will prevent people from giving out quick credit options, especially in difficult financial situations.
For example, Michigan citizens occasionally find themselves in an ambiguous situation: when they run out of money by the end of the month, have no relatives and friends to borrow, but are unable to get a short-term payday loan because of high prices.
But it is not being done among citizens to see the real picture. As mentioned earlier, many people use payday loans as the most important way out of a difficult life situation. They adapt to the terms and prices offered by many US lenders.
What to choose: an interest rate cap or a way to spend quick cash advances?
Every state, including Michigan, should weigh the pros and cons of the future law and its impact on Americans. There are cases when people cannot find any other way out than online credit. Also, not all customers are eligible to purchase a banking product as it has strict requirements to qualify for it.
When visiting a bank, you will need to provide a lot of certificates, papers. In addition, the applications are examined for up to 14 working days. Such loans are warranted only when you take out a mortgage or a car loan. Another reason is to borrow large sums of money over the long term.
By definition and practice, payday loans are short-term financial products; they do not apply to terms of more than 30 calendar days. Long-term APR offered by banks appear to be much cheaper.
Each borrower can find a different way to issue financial products. This is a credit union. It fights for lower prices and achieves some success.
Another way to reduce the debt trap is to use a 30-day cooling-off period. After the first credit has been successfully paid out, you cannot submit an application for 30 days.
There are many ways to cap interest rates, debt traps and we cannot claim that interest rate caps are the only possible initiative.