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.