Payday Loans is a short-term loan company, very unsecured amount of money that is advanced to the borrower for one reason or another. The money comes with a very high-interest rate. The terms of the loan are simple. The borrower(you) will repay the amount the lender advanced you with your next paycheck.
According to consumer advocated and many lawmakers, anyone who is low-income or poverty level should avoid one at all costs because you will be taken advantage of unless you have no other choice. The reason is that you might never get out from under it.
Payday loan sharks are becoming more harsh with payday loans, including adding a very high rate that they know the person cannot payback.
The Four Things You Need To Know About Payday Loans
1) Did you know that it affects more than 12 million people a year, and it can be a trap for some. The average loan rates total about $350 a year, while the interest totals out to almost $600 million.
The cycle leads to more money and debt. Say, for instance, Chad takes out a $350 loan. He will end up paying more than $375 in interest when everything is paid.
2) According to people at the CFA(Consumer Federation of America), the average APR is more than 400%. What most people do not realize is that most loans are for two weeks or less. The rates over those two weeks can range between 300-800%.
Some people assume that short-term loans are going to be better, which they will not be. Those rates will be higher, sometimes more than 800% over a year.
3) There was a recent study comparing those who took out a payday loan versus those who did not, even for low-income families. The study concludes that those who took out a loan are three times more likely to face things like bankruptcy.
Some clients have had their phone line cuts, their utilities turned off, and have even faced eviction over the lack of ability to repay what they borrowed.
A study from Texas finds that payday loan borrowers are twice as likely to file for bankruptcy within two years compared to those who stay away from the loans.
4) More than 50% of all borrowers have either rolled renewed their current loan or rolled it over. The study also finds that only 15% of borrowers can pay everything back within the two-week window.
A Sober Moment
I am merely trying to paint the reality of a payday loan. A lot of people assume that these loans are their ticket out of dodge, especially with the commercials you see on tv. The commercials do not show you the dark side of what will happen. This is your sober moment, so use it wisely. Try to find another way out if you need some extra money if you can.