Payday Loans

Monthly bills, we all have them. I promise you will see payday loan companies almost on every street corner. Money, most of us do not have enough, so we get pulled in by the Payday loans out there offering fast cash in only a few minutes. Payday loans seems like an easy solution to our current situation. But, at time goes on we find ourselves taking out another payday loan to pay off the first one we got, and then another, and another. Most of your money will go to the recurring fees, as the principal amounts hardly budge at all. If you do not re-pay the money you may be harassed by collectors, some of whom have gone as far as threatening to have you arrested for your debt. Some call these payday lenders simply "Loan Sharks".

There are now advocacy groups pushing to get new laws, and tighter restrictions on payday lenders, who can charge people who take out small loans hundreds, or even thousands of dollars in fees and interest. Tighter restrictions helps people who go to payday lenders for these loans.

Payday loans hurt not only individual consumers but entire communities. The advocacy groups want laws that place caps on the fees that can be charged for the loans and more strictly regulate businesses that offer them. Texas is the Wild West for payday lending, as there is no data, no licensing, no nothing.

Payday loans are small cash advances that get their name from the idea that people will repay the money with their next paycheck. The loan period is typically 2 weeks, and borrowers must provide a postdated check or electronic access to their bank account.

When these payday lenders first popped up they were largelay confined to low-income neighborhoods, but they are now nestled in strip malls and increasingly located in affluent and rural areas. Payday loan outlets have tripled in the past four years, growing to more than 3000 locations, and that's just Texas alone.

What makes payday loans so harmful is their costs. On average, borrowers pay $15 to $22 in interest and fees for every $100 borrowed. Converted to an annual percentage rate (APR) that can translate to more than 500%. Payday loans are more expensive than traditional forms of credit. But, many people who use them don't have access to credit cards, bank loans, or other usual borrowing methods. Without the payday option, many would be late on bills and face hardships such as having utilities cut off, etc. That could cost you more in the end. I'll give this example, a $29 late fee on a $100 credit card balance represents 756% APR. APR isn't the best way to talk about short term loans, though. If you told someone they had to pay back $115 for $100 they borrow for 2 weeks, most would say they were paying 15% interest. The eye-popping APRs cited by opponents are accurate only if a loan is rolled over for a year.

Payday lending is an important piece of the credit landscape, but the industry isn't being honest about its business model. Payday lenders like to say they are a safety net for people occasionally short on cash. We all are short on cash every once in awhile. Most borrowers use the money to pay for routine expenses such as housing or food. But, most of the money is made off of "REPEAT BORROWERS". 75% of payday lending profits come from churned loans, meaning loans people extend. Fees are usually tacked on to each extension. 58% of payday borrowers roll over their loans at least once. Nearly a quarter extend their loans multiple times.

What makes payday loans a "defective product" is the short repayment period. People short on cash can rarely repay the money, plus fees, in just 2 weeks. It's essentially a ticking time bomb in your budget. Payday loans are also bad for economic development. Families can easily spend 10% to 30% of their paychecks juggling the loans. That's money that could be spent at the grocery store. Too many people are getting dragged into inescapable debt due to payday loans. When consumers have six to seven payday loans, sometimes there's not a lot they can do to get out of that situation. One pastor calls payday loans a form of modern day slavery.

Hopefully this article will educate people and help people see that payday loans can be very dangerous financially on them. Don't let these payday lenders exploit you. Payday lenders should give people 6 weeks to pay off their loan, without rollover fees. I also believe that payday lenders should be required to have licensing in the state they choose to open in. It's just that these businesses should play by the rules, and not be making large profits off of those people who are struggling in today's economic times.

If you have any additional comments or suggestions please leave them in the comment section below. My readers would love to hear your thoughts on this matter of payday loans. Thank you for your time today, and be safe.

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