Payday Loans: Living a Financial Nightmare with No Way Out
George Boelcke CCP
October 08, 2007
Last year, payday lenders were used by over 19 million families who borrowed almost $50 billion. Fees for these short-term loans are around $15 per $100 borrowed. On the surface, that’s not a big deal if the loan is paid off in two weeks. But that’s almost never the case.
When families can’t pay off the balance, these loans are rolled over (renewed), and one-time $300 loan can quickly add up to over $2,000 in fees in a year. States which still allow payday lenders are seeing millions of people being charged annualized rates between 200 and 500 percent.
This month, a new federal law caps the interest rate that payday lenders can charge to military families at 36 percent. It’s a great step in the right direction – but it’s only the first step.
Yes, the payday lenders association does do some national television ads warning that their loans should only be used responsibly, and for amounts that families can pay back quickly. But a “what you should do” TV ad is different than what happens on the ground, with real families, real financial straights and almost no hope of paying back their loans inside of two weeks.
In fact, studies by the Center for Responsible Lending show that people borrowing five or more loans a year account for about 90 percent of payday lenders’ business and last year Americans paid over $4.2 billion in predatory fees. For these people, it’s almost like the song Hotel California: You can check out any time you like, but you can never leave.
Borrowing horror stories aren’t hard to find when there are more than 19 million families using these types of loans. During a recent radio call-in show, one lady had borrowed $800 she couldn’t possibly pay back in two weeks. More than a year later, she had paid over $5,600 in interest and fees and still owed the original $800!
It was such a sad story that I actually stepped in to help her pay it off. If you know someone in a similar situation, help them out. Do whatever you can to break the cycle of this financial nightmare. After all, if this person couldn’t afford this small amount in the first place – imagine the trap they’re now in by paying five or ten times this amount just in fees and interest with no end in sight.
If you owe a payday loan right now:
Tell your partner and your family. You’d be surprised how many people keep this financial nightmare a secret. You cannot get help if others don’t know.
Add up what you’ve paid on the loan so far, including all the rollover fees, and commit to paying it off the next due date, no matter what.
Can you hold a garage sale, do you have a bank overdraft you can use, or can you get an advance on some of your holiday pay from work? Can you work some overtime in this pay period, borrow part of it from family, get an advance from work or an extension on your next car payment?
Do whatever it takes to make this go away. Each $20 or $50 matters a lot and always focus on the total interest and fees you’ve paid so far – that’ll get you mad and moving, and out of being ashamed, frustrated or feeling hopeless. After all, knowing is always better than hope alone.
Lastly, send an e-mail of your payday loan horror story to the Center for Responsible Lending at: http://www.responsiblelending.org It’s the organization which stands head and shoulders above everyone else in fighting for consumers in preventing abusive lending practices.
If you think you need a payday loan:
Think before you borrow. Today’s emergency has to be paid back with next paydays’ money. If you know that can’t be done, you need to recognize that you’re about to buy some very short-term help for a lot of long term financial hell.
Does your state have credit unions offering lower-cost small loans? Many states, including Langley Credit Union in Virginia, Summit Credit Union in Wisconsin and North Carolina’s State Employees’ Credit union have alternative programs available.
Ask a family member or friends for help.
Always explore other ways of getting this emergency money through some of the suggestions above.
Start today to save for an emergency fund of at least one or two months’ worth of your expenses. It has to be in an account you cannot access with your ATM card, and it might only grow at $50 or $100 a month. But you’d be amazed at the financial freedom you’ll feel when you have some savings set aside.
When families can’t pay off the balance, these loans are rolled over (renewed), and one-time $300 loan can quickly add up to over $2,000 in fees in a year. States which still allow payday lenders are seeing millions of people being charged annualized rates between 200 and 500 percent.
This month, a new federal law caps the interest rate that payday lenders can charge to military families at 36 percent. It’s a great step in the right direction – but it’s only the first step.
Yes, the payday lenders association does do some national television ads warning that their loans should only be used responsibly, and for amounts that families can pay back quickly. But a “what you should do” TV ad is different than what happens on the ground, with real families, real financial straights and almost no hope of paying back their loans inside of two weeks.
In fact, studies by the Center for Responsible Lending show that people borrowing five or more loans a year account for about 90 percent of payday lenders’ business and last year Americans paid over $4.2 billion in predatory fees. For these people, it’s almost like the song Hotel California: You can check out any time you like, but you can never leave.
Borrowing horror stories aren’t hard to find when there are more than 19 million families using these types of loans. During a recent radio call-in show, one lady had borrowed $800 she couldn’t possibly pay back in two weeks. More than a year later, she had paid over $5,600 in interest and fees and still owed the original $800!
It was such a sad story that I actually stepped in to help her pay it off. If you know someone in a similar situation, help them out. Do whatever you can to break the cycle of this financial nightmare. After all, if this person couldn’t afford this small amount in the first place – imagine the trap they’re now in by paying five or ten times this amount just in fees and interest with no end in sight.
If you owe a payday loan right now:
Tell your partner and your family. You’d be surprised how many people keep this financial nightmare a secret. You cannot get help if others don’t know.
Add up what you’ve paid on the loan so far, including all the rollover fees, and commit to paying it off the next due date, no matter what.
Can you hold a garage sale, do you have a bank overdraft you can use, or can you get an advance on some of your holiday pay from work? Can you work some overtime in this pay period, borrow part of it from family, get an advance from work or an extension on your next car payment?
Do whatever it takes to make this go away. Each $20 or $50 matters a lot and always focus on the total interest and fees you’ve paid so far – that’ll get you mad and moving, and out of being ashamed, frustrated or feeling hopeless. After all, knowing is always better than hope alone.
Lastly, send an e-mail of your payday loan horror story to the Center for Responsible Lending at: http://www.responsiblelending.org It’s the organization which stands head and shoulders above everyone else in fighting for consumers in preventing abusive lending practices.
If you think you need a payday loan:
Think before you borrow. Today’s emergency has to be paid back with next paydays’ money. If you know that can’t be done, you need to recognize that you’re about to buy some very short-term help for a lot of long term financial hell.
Does your state have credit unions offering lower-cost small loans? Many states, including Langley Credit Union in Virginia, Summit Credit Union in Wisconsin and North Carolina’s State Employees’ Credit union have alternative programs available.
Ask a family member or friends for help.
Always explore other ways of getting this emergency money through some of the suggestions above.
Start today to save for an emergency fund of at least one or two months’ worth of your expenses. It has to be in an account you cannot access with your ATM card, and it might only grow at $50 or $100 a month. But you’d be amazed at the financial freedom you’ll feel when you have some savings set aside.
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