The Truth About Payday Loans
You notice them on every other corner in depressed and low income neighborhoods. They are almost a signal of downturn in property value. They are there to prey on the poor. Beware of Payday Loans.
Payday Loan Companies make their profit through repeated loan renewals.
Payday loans are marketed as two week, immediate cash loans. The borrower will write a check for the amount of the loan plus pay a processing fee. Ideally in two weeks the lender can cash the check and the loan period will be over. Ideal, however is seldom the norm. When the two weeks are over, they borrower often pays another processing fee to put off the check being cashed for another two weeks. This can go on for months, or years.
They say there is no interest rate on the payday loan. Don’t believe it for a minute. The typical APR for a payday loan ranges from 391% to 443%, if you count the “finance charges” of $15 to $17 per $100.00. Every time the loan is extended, the fees (interest rate) will go higher. If you were to extend the loan period three times, you would be paying $60 to borrow $100 for just six weeks.
The payday loan stores target patrons who live from paycheck to paycheck with no access to emergency funds I the need of an emergency. According to the Center for Responsible Lending (CRL),” 91% of payday loan borrowers receive five or more loans per year with 27% of borrowers getting 13 or more payday loans per year”.
Payday Loans are barely legal.
Many borrowers never get the loan paid off. Such a default by failing to make good on the written check or paying renewal fees will result in a bounced check, accumulating NSF fees, collection agency harassment, and the possibility of legal action.
Just because these stores exist, does not necessarily make them legal. The Industrial Loan Act of 1955 required state licensing and registration and imposed strict usury limits on small loans. This is when they replaced the exorbitant interest rates with “service fees” instead.
You should find another way to get the money you need.
Instead of getting a payday loan, you should consider getting overdraft protection on your checking account, keeping a credit card for emergencies only and paying it back as if it were a loan. You can also contact food banks and charities that will help pay your utilities allowing you to use the cash you do have for your emergency situation. Finally, if all else fails, do some work on the side, sell something you don’t use, or wait until your next payday to handle your financial problem.
