Iowa Legislature Drops Bill Limiting Payday Loans

[Feb 19, 2010.]

 

Short term payday loans can be a valuable solution to an immediate cash flow problem, but some Iowa legislators recently introduced a bill that would cap the interest charged on these loans and the number of payday loans allowed per borrower. The bill failed to move beyond the committee level.

Responsible Use of Payday Loans

Proponents of restrictions on payday loans suggested that the bill would prevent low-income borrowers from taking out loans with excessively high interest and then being unable to pay off the debt.

One opponent of the bill, Representative Thomas Sands, said that the bill would hurt individuals who use payday loans appropriately.

Sands was quoted as saying, "There are people that use it as a legitimate source for the short term who are not abusing it, so you're shutting them out. Everyone seems to get wound up on interest rates. Interest rates aren't the problem."

Payday loans allow consumers who can prove they have a consistent income to give a lender a postdated check for the amount of the loan and a fee. After two weeks, the lender cashes the check or gives the borrower another loan if the check won't clear.

The concern in Iowa was that new restrictions on payday lenders would cause most of them to go out of business, leaving consumers without the option of this type of loan.

Benefits of Payday Loans:

• Short-term solution for emergency needs
• Can be paid off in full within weeks
• Fast and easy access to money
• Meets urgent need for cash for auto repairs, utility bills, or other necessary payments
• Available for credit-challenged borrowers

Paying Down Debt

While payday loans offer a responsible short-term solution to money problems, every payday loan borrower should consider ways they can prevent the need for a short-term loan in the future. Saving money for an emergency should be a priority for every family, along with paying down debt so that cash is available for the unexpected events that everyone faces--car repairs or sudden medical bills.

Start by gathering all your financial information and evaluating your income and your monthly bills. Developing a budget can help you find ways to save money.

Tips for Eliminating Debt

• Pay cash. Stop using your credit cards until the balances are paid.
• See if you can transfer a balance to a credit card with lower interest.
• Choose a method for paying off credit card if you have more than one account. Either pay the card with the highest balance; pay the one with the smallest balance, or pay off the debt with the highest interest rate.
• Consider meeting with a non-profit credit counseling service to get your budget on track.

A payday loan can be a good short-term solution to money problems while you work on improving your overall finances. Compare payday lenders online to get the best deal.

 

About Author:

Michele Lerner is a freelance writer with twenty years of experience writing articles and web content for newspapers and magazines on topics related to real estate, personal finance, and business.