what urban must know

An insurance company can have many reasons for raising the rates on certain types of policies. This can be because of on insurer’s loss history, violations on a driver history record and the number of claims that have been made on the policy. A rate increase on an insurance policy will not take effect until the policy renews.

An insurer may raise the rates for certain types of policies based on their loss history in a particular area. This is true for areas that are prone to storms or areas in which an insurer has had a lot of claim activity. An insurer will occasionally raise rates on policies because they are not collecting enough premium to cover their claims costs. Normally an insurer looks to break even on the premium they collect and the claims they pay. This can not always be done if there is a storm or some other form of natural disaster which results in many claims being submitted to an insurer. When this happens the only recourse they have is to raise their insurance rates.

An insured that has an automobile policy can see their rates increase because of violations on their driving history. When an insurer looks at an insured’s driving history they are basically looking at the Motor Vehicle Record or MVR. The MVR will list all tickets and violations that were received by the insured. When an insured has received a ticket it will be applied to their insurance premium when the policy renews. Once a ticket or violation appears on an MVR an insurance company will use it to base the premium for three to five years. As a result a speeding ticket an individual received three or four years ago will be used as a factor to calculate the rate that is applied to their policy.

An insurer can also raise the rates on an insurance policy based on the number of claims that have been submitted on the policy. Usually when an insured files their first claim on their policy an insurer will not raise their rate. However, once there are multiple claims within a specific time period an insured can assess higher rates because the insured is seen as a greater risk. Again, any rate increase that is applied to a policy will not take effect until the policy renews. One thing an insured can do to reduce the amount of claims is to try and pay for damage that is at or near the deductible on the policy. Even though insurance is provided to pay claims having too many usually results in a rate increase.

Any time an insured decides to raise the insurance rate for one of their insured’s they cannot do so until the policy renews. This is because an insurance policy is a contract and it cannot be charge more for a policy mid way through the policy term. They can however decide to non-renew a policy but need to notify the policyholder at least sixty days in advance.

Payday loans have many names — cash advances, signature loans and paycheck loans, etc. Payday lenders provide quick and easy short-term cash to those who need money immediately. That’s the big reason why they’re so popular.

However, payday loans come at exorbitant costs. This can — and often does — lead borrowers into a downward spiral of rapidly escalating debt. Let’s look at the issue from various angles to get a complete picture.

First, the pluses. Here’s why cash advances may hold enormous appeal for you.

You can have bad credit and still qualify for a payday loan. In most cases, no credit check is conducted. The process is fast — it can take as little as 20 minutes to complete. Some lender even claim to target approvals in 30 seconds!

There are no upfront costs — so the buy-now-pay-later convenience applies here as well. You can apply in person at a local outlet, over the phone or over the Internet. You get funds deposited into your bank account in 24 hours.

Compared to some other sources for cash, payday loans are discreet — no one else needs to know about it. The transactions are secure — your financial information remains private.

If you’re faced with an emergency — say, unexpected medical bills — your only consideration might be to get money now. The speed and convenience of a cash advance comes in handy here.

So what are the disadvantages?

The most obvious one — high costs. A payday loan can cost you say, $15 per two weeks. If you’re borrowing only for two weeks, that doesn’t sound like much. However, if you calculate the Annual Percentage Rate (APR), you’ll see it comes to 391%!

If you don’t think that’s too much, let me ask you this question. If you invested money in the stock market, what would you consider a good annual rate of return? 20%? Maybe 30%? If you made a 20% return (on average) in stocks year after year, you’d be doing very well indeed. And this is for an investment that’s generally considered high risk.

Now compare that with what the payday loan companies charge. You are providing them with a return on their money they won’t get in too many other avenues.

There is another, less obvious reason why payday loans are dangerous. According to some estimates, over 60% of borrowers roll over a payday loan. Many take loans repeatedly, too.

Let’s put in some numbers so that you can clearly see what rollovers imply.

Assume you borrow $400 for two weeks at a cost of $15 per $100 per two weeks. At the end of two weeks, you owe them a total of $460.

Let’s say you don’t repay the $400 at the end of two weeks. Instead, you request a rollover. So you pay them the lending fee of $60 and they agree to roll over the loan for another two weeks. The total cost of the loan at the end of 4 weeks may be as follows:

Original loan amount: $400
Fresh lending fees payable: $60
Late fees payable: $60 (assuming late fees apply at the same rate as lending fees)
Lending fees already paid: $60
Total: $580

At the end of this period (which is 4 weeks from the day you originally took the loan), you decide that you don’t have $580 available and so request them to roll the loan over for another two weeks. Then this is what it can cost you in total at the end of 6 weeks:

Original loan amount: $400
Fresh lending fees payable: $60
Late fees payable: $60
Lending fees already paid: $120
Late fees already paid: $60
Total: $700

If you continue this process for six months (more specifically, for 24 weeks), this is what it may cost you in total:

Original loan amount: $400
Fresh lending fees payable: $60
Late fees payable: $60
Lending fees already paid: $660
Late fees already paid: $600
Total: $1780

For an original loan of $400, in a mere 6 months, the payday loan company will collect fees and charges of $1380 from you. That’s 3.45 times the amount you borrowed. In APR terms that’s 749.5%! If over 60% of borrowers roll over their loans, no wonder many payday loan companies are extremely profitable.

Snowballing costs can easily lead you into a debt trap if you get addicted to payday loans.

So what are the key points to keep in mind when dealing with payday loan companies? Two things:

First, avoid them (and other high cost borrowings) if at all possible. The best way is, of course, to get your finances fully under control so that you always have cash and / or credit available to meet emergencies.

Second, if you do choose to borrow from payday loan companies, borrow only an amount you’re 100% sure you can repay on the due date. If that amount is too low to meet your needs, get additional funding from other sources. Because rolling over cash advances is one of the worst things you can do to yourself.