Why Payday Lending is Such an Awful Deal

We’ve all seen them. Some of us have probably even been tempted to get one. They are generally known as payday loans, although they have many different names – including cash advances, pay advances or unsecured loans.

No matter the name, all payday loans generally mean one thing: horrible rates for borrowers.

COLORFUL ADVERTISING 

Walk past any payday loan shop and you’ll probably see a number of signs in the windows.

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The purpose of these flashy signs is to attract customers who are spontaneous, desperate, and who are looking for a loan ASAP.

Instead of doing that, we’ll tell you exactly what these services really are:

Checks Cashed: This service will take a paycheck and turn it into cash money for a customer.

Cost: In some states, payday lenders can charge at least 3% for this. For someone cashing a $1,500 check every two weeks this would cost $45, or $1,700 annually

Money Orders/Bill Pay: This is an alternative to using checks or electronic payments to pay bills, since cash is not accepted through the mail or online.

Cost: Mybanktracker did some research on Western Union, finding that on average it charges $.70 per money order, which would be $8.40 just to pay a monthly bill yearly through the mail.

Title Loans: Also known as a secured loan, this is where a lender will keep something of value as collateral from a borrower. Usually, a car title is used.

Cost: According to Car Title Loan, the average percentage rate of these loans can vary between 36-360% in annual percentage rates, or APR.

Payday Loans: These are short-term loans designed to help a borrower short on money until their next paycheck.

Cost: Usually a flat rate, for example $10 to borrow $100 for two weeks. Lenders must also inform borrowers of the annual percentage rate (APR) of these loans. Which leads to more than 200%!

MISLEADING ADVERTISING

Slick advertising targeted towards borrowers trying to make ends meet is a well-worn marketing tactic in the short-term lending industry.

Often payday loan shops will entice prospective customers by showing them a deal right on the window. It is not uncommon to see displays like this:

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Source: Wikipedia

The question is, how is it possible for these lenders to lend borrowers hundreds of dollars for only $20? In the short term, these lenders make their loans look like a flat fee loan. What the loans really are is an extremely expensive credit card if borrowers don’t pay back the loan in time.

COST CALCULATION

Calculating the Long-Term Cost of a Payday Loan

There are deceptive issues with the so-called flat fee structure that payday loans use.

Take the example above for the CashMoney payday-lending store. If a borrower were to obtain $200 for $20 over two weeks, the APR of such a loan is 260% and would cost:

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Source: The Calculator Site

This doesn’t include additional fees that might be levied against a late borrower. According to MoneySuperMarket, a survey found only half of payday loan borrowers are able to pay back the amount owed in time.

For example, payday lender Check Center charges a $15 late fee when payment is not on time – and doesn’t specify on its website how often this could be charged.

In some jurisdictions, payday lenders are required to notify lenders of APRs – you can see an example chart on the Check Center website. The purpose is to serve warning about the expenses of late payment, which can build up immensely over time for borrowers of these types of loans.

Calculating Long-Term Cost of a Title Loan

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Source: Carbucks

According to Bankrate, the cost of a title loan is usually somewhere around 25% for 30 days.

Borrowers must submit a title and access (usually in the form of keys) to the lender as collateral. These loans are usually a fraction of the value of an asset put up as collateral.

25% every thirty days is 300% APR. If a borrower takes out a $5,000 loan using a title to secure it, to pay it back in one year would cost:

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Source: The Calculator Site

Again, this doesn’t include additional fees that might be levied against a late borrower.

LEGALITY

It’s no wonder that payday loan companies usually set up shop far away from banks and dress up storefronts with colorful, eye-catching signs. If a borrower gets caught in debt to one of these lenders, it is very hard to escape as the costs begin to escalate.

It’s easy to wonder how these lenders are able to stay in business legally – if you fall behind when borrowing money from a payday lender, you can get into some serious trouble.

The Guardian recently reported that the number of complaints about payday lenders in the UK have doubled  in just the past year – sure to bring attention to the problems of payday lenders by lawmakers.

BOTTOM LINE

Stay away from payday lenders. Peer-to-peer bitcoin lending is often a better alternative to borrowing money.

Click here to see how a  bitcoin loan is an option.

Simply put, payday loans are not worth it. There are plenty of other options for borrowers.

Untangling Peer-To-Peer Lending, Crowdfunding, and Microlending

In my previous post, I provided a short overview of the evolution of the lending space and the role of banks herein. Over the past years, especially as a result of the financial crisis and arising regulations, banks have pulled back from issuing loans. This has paved the way for alternative financing solutions like Peer-to-Peer lending, crowd-funding and micro-lending.

The most significant similarity between these three services is that there is no involvement of traditional financial institutions. In this post I will discuss their most important features, explain which markets they serve, and show what their key differences are.

Peer-to-Peer Lending

The core concept of Peer-to-Peer (P2P) Lending is a that a group of investors lend to one person or business without the interference of traditional financial institutions. Usually the investors are individuals who are not related to and do not know the borrower. The development of the internet has enabled this new form of lending: an online marketplace that completely facilitates the loan transaction.

An interesting trend in the P2P Lending space is the increased participation of institutional investors and banks. P2P Lending companies can operate more efficiently thanks to the use of new technologies and less overhead cost, thereby making these marketplaces very interesting for both borrowers and investors. According to Charles Moldow, a partner at Foundation Capital, P2P Lending Platforms have a 400 basis point advantage compared to traditional banks.

A notable player in the field in Europe is Zopa (located and operating in the UK). In the United States, LendingClub and Prosper are the first P2P lending platforms who service the US market. Funding Circle and OnDeck also facilitate small business loans through their marketplaces.

A new and truly unique P2P Lending platform is our company, BTCJam! By using bitcoin as a transaction protocol and a global credit-scoring model, BTCJam is the only P2P lending company that operates worldwide.

 

Crowdfunding

Crowd-funding is based on the same principle as P2P Lending: funding takes place by a group of investors. There are significant differences between the two:

First, crowd-funding is typically used for specific projects or ideas and not for personal loans. The second distinct difference is that investors who contribute to a project do not get interest–instead they’ll receive rewards, special perks, or gifts. For example, they may get the first release of an album or the product they supported.

A new development within the crowd-funding industry is the so-called “Equity-Based” crowd-funding: as a reward, investors receive unlisted shares of the company. Equity crowd-funding has been a popular way of raising capital for companies in Europe and Australia for several years. In the United States, equity crowd-funding is only accessible for accredited investors, but this could change soon based on the JOBS Act. The JOBS Act would let non-accredited investors gain access to equity crowd-funding which would dramatically expand the possibility for startups and entrepreneurs to raise capital. Seedrs is an Equity crowd-funding marketplace that operates only in Europe and has been very successful.

A well-known crowd-funding platform is Kickstarter; people have pledged over $1 billion, funding 65,000 projects. Kickstarter is not equity crowd-funded, which prohibits individuals from making long term equity on the products they invest in.

 

Microlending

The main goals of micro-lending are to financing poverty stricken areas of the world and reach underbanked communities. The loan amount is usually very small and the purpose of the loan is usually for personal use. Many of these loans help to finance medical bills, small businesses, education, and agricultural development.

In P2P lending and crowd-funding, there are multiple investors contributing to the loan, whereas in micro-lending, you often see that also the borrowers team up. Loans are provided to a group of people who will vouch for each other, thereby, minimizing the risk of default.

The first micro-lending initiatives did not have profitability as a driver, but over the years some micro-lending institutions have argued that doing good shouldn’t stand in the way of making profit. Opinions remain divided on the subject.

Grameen Bank is one of the first and leading Microcrediting organizations. Besides micro-lending it also offers other financial services. Kiva created an online marketplace to connect investors with borrowers in developing countries. Kiva works with local field partners who assess, distribute, and monitor the loans.

In the chart below I summarized the characteristics of the three financing solutions. The alternatives to traditional banking loans all serve different markets and it’s strongly recommended to research which solution suits your needs.

image – Isabelle de Clercq 

What is Phishing and How to Detect It

What is Phishing?

Phishing is an attempt to steal your identity.  Some of our users have received e-mail that appears to be from BTCJam, but is really designed to trick them into revealing private information. This type of scam is called “phishing”. Under false pretenses, criminals try to get you to disclose sensitive personal information, such as credit and debit card numbers, account passwords, or Social Security numbers.

– These emails may be sent to thousands, usually at random, and appear to be messages from well-known companies.

– The phishing email contains links or buttons that take you to a fraudulent website.

– The fraudulent website typically mimics the company referenced in the email, and aims to extract your sensitive personal data.

Email addresses can be obtained by these criminals from many places on the Internet. Lists of emails may be purchased, or even guessed, If you receive a fraudulent email that appears to be from BTCJam, this does not mean that BTCJam’s computer systems have been breached.

Never open attachments, click links, or respond to emails from suspicious or unknown senders. If you receive a suspicious email that appears to be from BTCJam, report it and delete it.

How to Spot a Fake Email

  1. The sender’s address may include a seemingly official address that mimics a genuine one. It is easy to alter the sender’s email address so do not initially trust it.
  2. Typos and poor grammar are common from fraudsters, and not because they do not know how spell – it is so the phish will not be blocked by email filters.
  3. The fraudster will try to instill a false sense of urgency that usually tells you to check your account right away or something critical will happen if you do not give the information.
  4. These emails will include fake links that lead to other sites. Please hover over the link before clicking it to check if the URL leads to BTCJam.

At BTCJam, protecting our members is a top priority. Remember to report a suspicious or fraudulent email to support@btcjam.com

Introducing NAR: A Useful Tool for Successful Investors

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What is Net Annualized Return?

NAR (Net Annualized Return) is the measurement of the performance of your total investment on BTCJam. It reflects the funds actually received each month.

You can now view your NAR of all your investments on BTCJam in your Investments page.

What makes NAR useful as an investor?

As an investor, you need to eat, sleep, and breathe NAR. (Also, expected APR – see more here).

If you were a painter, the paint would be your invested bitcoins, the brush would be BTCJam, and the NAR would be the painting. NAR is the most accurate measurement to monitor how you have grown your bitcoins on BTCJam.

How does BTCJam calculate NAR?

To calculate NAR, the numerator is composed of interest received, plus late fees received, minus the amount in default. The result is divided by the total mature principal. The mature principal is the investment that has already a related payment or default.

For notes, your notes sold also affect your returns both positively and negatively. If you sold a note for 1, but invested 1.2, you will have a -0.2 loss. If you bought a note for 0.1 and received 0.4 in payments you will have 0.3 in gains

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This is a live calculation so every event that can change it is automatically performed.

BTCJam started using this calculation from April 1st, 2014, so this only reflects your return starting with funds invested on or after April 1st, 2014.

Get g’nar’ly,  and start investing today.

10 Tips to Get Out of Debt

Spend less, save more. It’s the third most-common New Year’s resolution for a reason — millions of people around the world struggle with debt, but few know how to chip away at the credit card bills, car loans and other expenses that can leave you feeling overwhelmed. It is possible to dig yourself out from under what can seem like a mountain of debt using a few easy-to-incorporate strategies.

Get organized

#1 Make a list

Trying to deal with a lot of miscellaneous bills can make paying down debt a nightmare. The first step toward repayment is to get organized so you have a clear picture of where you stand. Make a list of exactly what you owe and to whom. By facing the facts and laying everything on the table, you are more likely to have a realistic idea of your situation and a better chance of making progress.

#2 Make a budget

Make a budget and stick to it! This is difficult for a lot of people — hence those broken New Year’s resolutions. Try a web service like Mint.com or BudgetTracker.com to help you organize your budget, and be honest about what you put down. Try to stick to it and see how good it feels to stay within your means each month.

#3: Refinance your debt

Try refinancing your credit card or other debt. You can apply for a personal loan that may have a much lower APR than many high-interest cards, and using this money to pay off credit debt can save you money on interest payments in the long run.

#4 Organize your spending

Categorize your spending. Organize things into must-have, should-have, and like-to-have. If you can do without something, you can put it on the “like to have” list and avoid spending money on it until you’re in clearer financial waters. Things like the gym membership you rarely use, new shoes, and movies are in this category. Make your main expense priority the payment of your debt — it becomes a “must have.”

 

Shrink your waistline — and your wallet

#5: Eliminate extras

Want to slash extra spending from your budget — and maybe shed a few pounds as well? Take a look at what “extras” you can eliminate from your budget. Things like dining out, fast food, and trips to the coffee shop can add up to not only a lot of extra spending but quite a few extra calories as well. Slash excess treats from your diet and you may end up cutting costs, too.

#6 Write down your expenses

Write down what you spend. Your debt is built up over time of many small purchases, and if you can track these items and manage to get them under control, you can have better and faster success of keeping your debt from increasing and an easier time paying it off.

#7 Stop spending

Stop spending! Cut your cards in half. Experts agree that you should have no more than one active credit card at a time. Get rid of department store cards and gas cards, and use your one card only for emergencies.

Tackle the worst first

#8 Pay off high interest debt first

Pay the most each month on the cards with the highest interest and the lowest amount on the cards with the lowest interest. Doing this will ensure you pay off the high-interest cards more quickly and save in the long run.

#9 Pay off debts with smallest balances first

Pay the debts with the smallest balance first and the minimum on other debts — this likely eliminates the smallest debt first, and gives you a much-needed boost of confidence.

#10 Don’t close the account

Once you’ve paid off a credit card, avoid the temptation to re-up your balance with more purchases — but avoid closing the account. Closing accounts could negatively affect your credit score.

What have you guys found to be most helpful to get ouf debt?

Let us know in the comments!

Why get a loan on BTCJam.com?

There are many great reasons to get a loan from BTCJam:

  • Low interest rates
  • Fast and Easy Online Process
  • Available Globally
  • Secure and Confidential

Why do we have low interest rates?

Through our global peer-to-peer lending platform, we have capital from investors in developed nations who are happy with lower returns than most local banks who have high interest rates set by the national banks in most of the developing world

Most developing countries need to attract capital from foreign investors to develop their infrastructure. To be competitive and since there is quite bit of risk involved, they have to offer quite high interest rates to those investors. Since the treasuries they are selling can also be bought by their local national banks, the interest rate banks are giving to consumers are higher as well, since they need to have a similar or higher internal rate of return on consumer lending in order to justify the investment of time and capital.

But with our peer to peer lending platform, as long as we can create a better return/risk ratio for lenders than other alternatives they have access to, we will be able to offer loans to borrowers in those countries at rates that in many cases are much lower than what they can get at their existing banks.

Additionally we screen our borrowers very thoroughly through our innovative, global credit scoring algorithms. Since we are able to predict the likelihood of default pretty well, lenders have confidence and are happy with lower interest rates, since they know the risk they are getting when investing.

Why do we have little bureaucracy?

We do everything online and our innovative credit scoring algorithm can assess your credit score within seconds of your application.

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Traditional banks have to ask you a whole bunch of questions about you before someone in an office decides whether you are ‘credit-worthy’ or not. We also ask some questions, but since we are doing everything online and including information about you from your various profiles on the web, such as Facebook, Linkedin, Paypal, Ebay etc, we can automate a lot of that process and do instant credit scoring based on the information you give us.

Can I get a loan if I am in (INSERT MY COUNTRY HERE) ?

The answer is a resounding YES! By using bitcoin, the community can fund people from literally any country, including Antarctica!

How is my information protected?

We don’t share any personal information about you with lenders or anyone else. We reserve the right to do so in cases required by law or if you specifically give us permission to do that.

Ready to get a loan on BTCJam? Start here

Or read: Is BTCJam right for me?

What is the process of getting a loan on BTCJam?

Getting a loan on BTCJam is a very straight forward process.

Here is how it works:

1. Verify your identity

Verifying your identity is the initial step in applying for a loan at BTCJam. We will ask for your photo ID, address verification, income verification, banking conformation, social network ids, personal references, your Paypal account, and your Ebay account.  The more complete your profile is, the more trust you gain in BTCJam and, thus, the more likely your loan will be funded.

Make sure to use high quality photos/scans, so that our verification team can easily read all the important information from your passport, your income stubs etc.

Do I need to have all of these social networking accounts?

You don’t need all of the items listed above. HOWEVER, our credit score algorithm will likely give you a low rating if you have only a few items verified. The minimum verification we require is your identity and address, but beware, your interest and APR will be extremely high. The more legitimate and trustworthy you appear, the more likely you will get funded on good terms.

How long does the verification process take?

1-2 business days after you have submitted your documents.

2. Describe your loan and decide the terms

Go through our easy loan creation process. Here you can describe why you need the loan and how you will repay it. You can also set the terms: length of the loan, interest rate you want to pay, and frequency of payments.

After that, all you have to do is to hit Publish and you’re all set!

3. Watch investors fund your loan and get the money!

This is the fun part. Watch as investors come in to fund your loan. Of course it helps to tell friends and family about this, as they can increase the speed at which your loan gets funded and it increases social verification for investors.

As soon as the listing has been funded by at least 70%, you can activate the listing! This binds you to the terms you defined in the loan listing in step two.

The best part: The bitcoins are instantly available in your account.

So are you ready to get a loan? Click here to get started!