Your most expensive credit card probably has an APR in the 24% to 36% range. So how does an APR more than TEN TIMES that sound? If a $200 payday loan costs you $30 for 10 days (The average length of a Payday loan), that’s an APR of almost 400%! Most Payday lenders prey in markets where large numbers of residents cannot qualify for mainstream or NO RECOURSE loans.
It’s easy money, but, with no credit checks required and no collateral securing the loan, it makes up for it in incredibly high interest rates.
2. It’s easy to get stuck in a repeating cycle of debt.
According to market research, over 70% of all Payday loans are used to pay off old or preexisting Payday loans. With short payback terms of 10-15 days, it’s very difficult for consumers to pay back these loans quickly, and in turn, requires the borrower to continually write new payday loans ever couple of weeks to satisfy the old ones. The average Payday borrower stays in debt, on ONE 10 day Payday loan, for more than half a year.
When the day arrives that your loan is due, you usually have two options: Pay the loan in full, or pay the 2 week fee and roll the loan over for another 2 weeks.
3. Debt can grow at an ALARMING rate!!
Extremely short loan terms, coupled with high interest rates create a “perfect storm” for revolving debt. Most Payday borrowers end up paying 4, 5, or even TEN times the amount they originally borrowed!
The Debt that can be ammassed by a SINGLE Payday loan can snowball out of control in a short time, and can easily quadruple in just one year. One tiny mistake can mean lifelong debt.
4. Many payday loan companies require access to your bank account.
As a “convenience”, Payday lenders will offer to take the money straight out of your bank account, saving you the “hassle” of going into the lenders storefront. You don’t even have to write them a check up front! Problems can arise if the loan fees spiral out of control and you can’t afford to pay it back a still afford your basic living expenses.
The Payday lender doesn’t care, and will continually try and shove their payment through, generating tons of overdraft fees, and could result in closure of your bank accounts!
5. If you can’t afford to pay back a Loan in 2 weeks, the due date can become very unpleasant.
Payday lenders often have a history of using “strong arm” debt collection practices including late night or early morning collection calls, threats of criminal prosecution, and straight harassment of the borrower, their family, friends, or loved ones, and even their neighbors!, plus all sorts of other violations of your rights.
Statistics show that Payday loans are defaulted on in 15-20% of all cases, because the short terms and high APR’s can quickly create a cycle of debt. This creates lenders who are very, very aggressive when people don’t pay loans back as promised.
Given the high risk environment, and even higher interest rates, it is obviously better to avoid these types of loans like the plague.