The Dangers of Payday Loans

NO CREDIT? BAD CREDIT? GET QUICK CASH UNTIL PAYDAY!

The ads are all over the Internet, especially in the United States. Quick, easy, loans, with no credit checks, no processing time to speak of...if you have a checking account and a job, you can get a loan, from $100 to $1500, with a loan processing service, and get the money FAST! Within 24 hours!

How it works: you apply to the loan financing company, online, a very fast, easy process. You give the loan processing company a check--postdated, for the amount of the loan plus the fee. The lender gives you the money less the fee, either electronically deposited into your account or cash. The loan amount, or a payment on the loan amount, is due to be debited from your account on the next payday. The fees can be a percentage of the total borrowed, or a flat fee per $50.00 or $100 increment.

These are small loans, usually, to tide people over who are living from paycheck to paycheck and faced with a sudden emergency, or to tide people over who are already over-extended with their credit and have an unanticipated need.

Many states regulated the maximum allowed for these loans. The limits can be anywhere from $300 to $800 to $1500, depending on what state you're in.

Money is attractive to just about everyone. Borrowing against future income is a habit many Americans seem to have gotten into, and it's a habit that's hard to break.

But it's a dangerous, dangerous cycle. Though the Federal Trade Commission posts warnings, and urges people to look into other options, still, the prominence of the advertising and its delicious promises of quick and easy cash are a lot more visible than any warnings the FTC issues. And--the FTC doesn't adequately regulate these loans, or credit in general, which is part of the reason the working folks got into their financial messes to begin with.

This advertising is ubiquitous....it's everywhere, it's everywhere! Radio, television, the Internet.

What these easy, quick, short-term loans do is just dig the hole deeper for a lot of people.

These loans are incredibly expensive. Say you got a payday loan for $100. You had in your pocket, the next day, the $100. You had the money debited back from your account in two weeks. So, two weeks later, $115 came from your account. That's an annual percentage rate of 391%. Yes. 391%. Do the math! Even though that $15 didn't sound like a big deal at the time, still, you can see what a rip-off this whole scheme is.

If you needed to roll that loan over three times, ( being short of cash for a period of about 9 weeks, a little over two months) you'd end up paying $60.00 in fees to borrow that $100.00. And if money is already tight for you...

What happens then? What happens when you get in so far over your head you can't get out again? The lending companies end up swallowing your paycheck, by continuing to roll over these little loans.

We had another name for it, years ago. We used to call it loan sharking, and the Mafia made a fortune from it. Now banks and lending institutions have climbed on that bad old bandwagon.

This racketeering, this exploitation of the poorer people to make the wealthy even wealthier, with unearned astronomical rates of interest, used to be a criminal activity.

Now, it's "regulated" (uh-huh!), and the banks and lending institutions are exploiting financial hardship for profit. Borrowers don't always understand the cycle of debt, where they find themselves repeatedly renewing the loan and pay associated fees every two weeks without ever being able to pay it off.

The loans are so tempting, hassle-free, delivered with a smile, and may seem, in the initial stages, to be an answer to a prayer.

Many people are getting more and more caught by these things, and finding out it isn't an answer to a prayer but yet another ticket to the hell of unresolved debt.

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Comments 20 comments

Paradise7 profile image

Paradise7 4 years ago from Upstate New York Author

Thank you for the comment, Angela. You are so right. I was so mad when I posted this article at first--Google put ads for payday loans all over it! I got in touch with HubPages who solved the problem instantly. We made this a non-profit hub.

If you're ever tempted, don't do it. Live without until payday, or borrow from your brother, sister, aunt, uncle, mother, father...anybody but these folk.


Angela Brummer profile image

Angela Brummer 4 years ago from Lincoln, Nebraska

I have seen people get into serious trouble doing this!


Paradise7 profile image

Paradise7 6 years ago from Upstate New York Author

You're very welcome and please feel free to pass this info around to whomever could use the warning! Much love and God bless, Creative one.


creativeone59 profile image

creativeone59 6 years ago from Gold Canyon, Arizona

Thank you for the heads up on payday loans, they can be dangerous to your bank account, thank you for sharing it. God bless. creativeone59


Paradise7 profile image

Paradise7 6 years ago from Upstate New York Author

Hi, Duchess! Yes, please do. None of my hubs are copyrighted or anything. Anyone can feel free to photocopy, or duplicate any of the information in any form they wish. Pass this one around, especially, just to protect people from these robbers!


Duchess OBlunt 6 years ago

Great information Paradise7. And thank you too Jaspal for your additional information. I need to show this to a few people!

Thanks


Paradise7 profile image

Paradise7 6 years ago from Upstate New York Author

Thank you both for your comments, Jaspal and vanerhaven. Vanderhaven, please convince your son NOT to get one of these things, such a RIP OFF! You know, Jaspal, I was thinking with a cash advance on the credit card, you have 30 days to pay it off without penalty or interest, and after 30 days, it accrues at the regular rate plus a one-time fee, which is still a LOT less than these payday loans charge. I might be wrong about that, now. It's been a long time since I've done that, or even looked into it. I didn't know that you're now penalized on the credit card for paying a cash advance back quickly!


Jaspal profile image

Jaspal 6 years ago from New Delhi, India

This is really a rip off .... and it is hard to believe that even banks are allowed to charge such high rates of interest. Why not use the credit card for making any essential payments till pay day comes around? There is typically a maximum of about 50 days (depending on the billing cycle) by when it has to be paid back - and, if paid back in full, the interest on that is zero.

I read your comment above about withdrawing cash on a credit card. Though they say the rate is 24% (or 39% as in India) they have a minimum charge which can turn out to be much higher if the loan is taken for only a few days.


vanderhaven profile image

vanderhaven 6 years ago

I was trying to explain some things about places like this to my oldest son. Now, I can simply show him your hub and it is clear and makes sense and he can read for himself what I have been trying to tell him. :)

Thank you for the information and the well written hub!


Paradise7 profile image

Paradise7 6 years ago from Upstate New York Author

Thanks, scary staff, for that comment. Share the news if you ever here of any one of you and yours contemplating these things. Even the credit cards aren't THIS bad. I think the UK has a more reasonable attitude towards lending and has that under control more than in the US, though I don't know for sure as I haven't done any research on this topic.


scarytaff profile image

scarytaff 6 years ago from South Wales

Well done, No7. It's time these companies were shown up. I guess we're lucky in UK as the credit card companies are competing so hard with each other, that you can transfer your balance from your regular credit card company to a rival company at zero percent interest, with up to fifteen months to pay it off. I do this regularly.


Paradise7 profile image

Paradise7 6 years ago from Upstate New York Author

drpastorcarlotta and Whistler, thank you for your comments. Whistler, please share the hair-raising stories, to try to let people know what need to, before they get roped in. I wish I had a few of those stories to add to my hub.


Whistler2417 profile image

Whistler2417 6 years ago from Mississippi

Oops - got sidetracked, excited to see this hub and forgot, great hub.


Whistler2417 profile image

Whistler2417 6 years ago from Mississippi

Paradise, I am ashamed to say, I worked for one of these companies. I took the job after I was laid off from another. I only stayed 8 months. I hated it. They put these places in modest income places, so, if you think I wish I just had an extra $100, wella, there it is. In Mississippi, the rate is 520% yearly. $20 on the $100. It is quite lucrative for the owners, but customers hurt. I could tell you some hair raising stories about these places.


drpastorcarlotta profile image

drpastorcarlotta 6 years ago from BREAKOUT MINISTRIES, INC. KC

WOW!!!! I did not know this! I must share your Hub! Praise God!!! Blessings!!!


Laura du Toit profile image

Laura du Toit 6 years ago from South Africa

Very well researched hub and once again pointing out how the rich get richer by stealing from the poor!


Catherine R profile image

Catherine R 6 years ago from Melbourne, Australia

Interesting article. These type of loans don't appear to be available in Australia - I certainly haven't seen them advertised - thankfully. You are right though - it is a shocking exploitation of already vulnerable people.


Paradise7 profile image

Paradise7 6 years ago from Upstate New York Author

Thank you both for the comments. Veronica, the credit card companies are limited to about 24% interest annually. That's the max. These short-term loan things, with the FEES, end up costing the person around 390%!!! Big diff, there, it's better to get a cash advance from the credit card, should you be in a small bind, then to get involved in these "payday loans". The credit card companies scalp you: the "payday loan" sharks scalp AND EAT you!


Veronica Allen profile image

Veronica Allen 6 years ago from Georgia

Wow! I've always been leary of these loans (fortunately I've never needed their services) but I had no idea how much their annual percentage rates were. And the fact that they are "regulated" - that just brings up a whole new set of questions and issues. Thank you so much for this informative Hub. It's really sad that people are being exploited like this. What do you think is worse though - the payday loans, or the credit card companies?


I*n*v*i*c*t*u*s profile image

I*n*v*i*c*t*u*s 6 years ago

Very, informative, Paradise7! I never made the connection between these loans and the Mafia. Yet, it is so right-on! I guess the government was jealous of the competition, maybe! Hmm.. Thanks! :)

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