Millions of Americans remain unemployed, facing financial difficulties during the COVID-19 pandemic. Payday loans for unemployed borrowers are aggressively focusing on vulnerable communities through online marketing campaigns.
Some experts are concerned about more borrowers taking out payday loans despite their high-interest rates. Meanwhile, the market of lending services positions itself as a fast financial fix by providing quick cash online. It also leads borrowers into debt traps with immense interest rates up to 400%.
Specificity of Payday Loans
Payday loans are short-term emergency funds that borrowers are usually expected to pay off when they get their next paycheck. And compared to classic bank loans, payday loans unemployed do not need a formal employment record, good credit past, or some sort of collateral.
Direct lenders prepare the eligibility of borrowers based on their income sources. Borrowers are only expected to prove that they have some kind of stable income. In some states, lenders even accept submissions with job contract offers, sale agreements, or proof of upcoming inheritance.
By the way, payday loans often come with high interest rates and hidden provisions that charge extra fees. Borrowers end up paying APRs as high as 600% along with extra charges in the form of application fees and late repayment penalties.
While the interest rates and charges vary from one state to another, data published by the Consumer Financial Protection Bureau (CFPB) demonstrates that a standard two-week payday loan imposes a fee of $10 to $30 for every $100 taken. This makes the whole deal less attractive.
Advances on Unemployment Checks
The payday loans unemployed have become a new and lucrative source of business. Payday lenders are providing the same service to those protected by unemployment insurance.
Critics of the practice state that these costly loans are sending the unemployed into a debt cycle. Eventually, it becomes more and more difficult to get out of it.
Many payday customers pay off their loans and take out another straight away. How smart is it? Everyone decided for themselves. But it’s hard to deny potential risks.
Some direct lenders offer special products to give the illusion of assistance. Instead of giving a lifejacket, they are putting them deeper into the trap. The industry views it as a service, providing short-term loans to people who can’t stand a chance with a traditional bank or a credit union. For example, California has an unemployment rate of 12%. No wonder many people have to consider payday loans for unemployed as the possible solution to their financial problems.
The advances on the government check have helped many American borrowers pay their household bills before late charges get applied. It’s legal. Payday lending is managed by the state, but private lending companies don’t need to check sources of income. In most cases, they just need an active bank account and a valid identification number.
Payday lenders have been controversial since the industry started growing drastically in the 1990s. The legislation was spurred by concern. The payday loan debt is influencing the readiness for deployment. Although some states capped the maximum loan amount, chances to further manage the industry have foundered.
Some payday lenders don’t cooperate with unemployed applicants. They have strict policies similar to banks and credit unions. But they don’t perform unemployment checks to find proof of stable income. Nevertheless, there are more than enough direct lenders that approve payday loans for unemployed citizens.
In fact, every 5th unemployed American used a payday loan ın 2021. It seems that this tendency is about to continue in 2022. The situation with employment is still unstable in the United States. The consequences of the pandemic will most likely be shaking the national economy for some more years. This means that people will still be looking for alternative sources of funding.
Most unemployed borrowers happen to be more desperate than other customers. Don’t let direct lenders cheat you! Make sure to find a reliable loan offer and take it when you are sure of it.