The
Payday Loan Problem
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%
Cost of Payday Loan:
$557.58 (More Than 3 Times the Principal)
The
Payday Loan Cycle
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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