5 of 12

Write now Article Tools

The Pitfalls of Payday Loans

Many consumers are victims of payday loans; they appear to be a convenient solution to get you out of a bind; a quick fix so to speak. Consumers beware... there are a few things you should consider before pursuing this option.

Case scenario... Jacob needed $250.00 to pay a nagging bill that was standing in his way of getting the credit he needed to purchase a used car. Jacob fell into the trap of taking out a payday loan. After paying off the debt, he succeeded in getting the credit he needed to purchase a car to replace his washed-out `86 Buick.

Jacob returned to the lender the following payday, paid the $40.00 fee and asked the lender to extend the loan until the following payday. Circumstances prevented Jacob from meeting his expensed for an additional eight months.

Let's do the math... Jacob paid the $40.00 fee every two weeks for a total of nine month without ever paying the $250.00 principal. He finally borrowed the money from his brother to get out from under the debt. That $250.00 loan ended up costing $720.00 in fees over and above the original $250.00 he borrowed; he paid a total of $970.00 for a $250.00 loan.

In recent years, lenders have discovered new ways to profit from other's hardships. These lenders have come to be known as payday loan or cash advance establishments, among other various titles. These lenders typically charge anywhere from 300% to as much as 1,000% interest for the convenience of easy accessibility to quick cash. If you are unable to repay the loan you risk the potential of an endless cycle of recurring debt.

Lenders emphasize the convenience of getting the cash you need on the spot; they make it seemingly easy to secure a loan. All that's required is a postdated check in the amount of the loan to include their fee. When the loan becomes due, the lender either cashes the check, or you can extend the loan and pay the fee again. Statistics show the average payday loan is estimated to rollover an average of six to ten times. The lender can typically recover the principal balance of a $200.00 loan in less than three extensions of the loan; after that the lender derives 100% profit on each rollover.

Seek Alternative Ways to Borrow:

If you don't qualify for a traditional loan, seek the help of family or friends.

Negotiate an alternative payment schedule with your creditors.

Look into getting overdraft protection for your checking account.

If you have a credit card, take out a modest cash advance.

If you simply must

• 1
• 2
• next page >>

Add your voice

Know something about Payday Loans: What you should know about them?
We want to hear your view. Write now!