The
Payday Loan Problem: The Vicious Payday Loan Cycle
  Many of us live
paycheck to paycheck, but if you can’t pay you with your paycheck
something is very wrong. After all, you report to work and get the
job done, not your creditors. So why should they get most of your
money? The answer is they shouldn’t and you have the power to change
that today.
For people like
this, a payday loan may seem like an instant solution, but
the truth is it isn't. The problem is the interest rates and
exorbitant penalty and other fees.
This is a real life
example:
(Originally reported in the Chicago Tribune.)
Payday Loan Amount:
$182.68
Interest Rate:
573.57%
First Payment:
$557.58 (More Than 3 Times the
Principal)
The
Unfortunate Payday Loan Process
Basically payday
loans are designed in order to help with emergencies or expenses
that come into our lives unexpectedly. Ideally payday loans
will be paid off 2 weeks after they are borrowed or upon the next “pay
day” of the borrower. Unfortunately this is not the usual case.
In order to receive
the loan the borrower will usually give their checking account
information in order that the payment can be taken out automatically
on their next pay day. This assures the payday loan company
that they will at least get an opportunity to collect fees even if
the full loan cannot be recovered from the checking account balance.
Most borrowers
simply can’t afford to pay back the full amount like originally
intended on their next payday. This forces them to “renew” the loan,
(certain interchangeable terms will be used to describe this),
meaning the borrower will end up paying back a fee which may range
anywhere from $8-$15 for every hundred dollars borrowed every 2
weeks (this differs with each payday loan company give or take a few
dollars either way). This money usually does NOT come off the
principle amount borrowed. Not even a penny of it.
To put it simply,
if the payday loan is for $1000 and the borrower can’t afford
to pay the full amount back, they will usually end up paying about
$150 every 2 weeks (give or take a few dollars on either end, this
depends on the payday loan company) in order that they can owe the
full $1000 again. Does that make sense? Of course not, but it’s the
unfortunate payday loan process.
So what happened?
Here’s what happened. The borrower paid the payday loan company
$150 in 2 weeks time and still owes the full amount. Most of the
time this cycle continues every 2 weeks for a long period of time.
We have heard nightmare stories of this happening for years without
a dime going towards the principle borrowed. This can stop and can
be controlled but a different course of action must be taken.
Click here to learn about
responsible payday
loan borrowing.
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