The Pitfalls of Payday Lending
By: Nicole | August 22, 2008 | Category: Money
The Gov Gab comment box has recently been flooded with spam promoting payday loans. Fortunately, we don’t post spam, but these messages gave me an idea for today’s topic.
If you gather more than five consumer advocates in any one location for more than five minutes they will commiserate about the pitfalls of payday lending. For cash-strapped consumers, a payday loan is one of the most treacherous ways to borrow money.
Here’s an example. A person borrows $100 until payday. The lender charges $15. The borrower cannot repay the loan on time, so the loan is "rolled over" for another two weeks with an additional fee of $30. Already, this person has spent $45 to borrow $100, and the borrower is not out of debt yet.
Most payday lending models actually intend to keep the borrower in debt indefinitely. More than 90 percent of these loans are given to borrowers who use more than five payday loans per year.
Payday lending is illegal in some states. Use this map to determine if your state has laws that protect you from payday lenders.
If you find yourself short on cash, look for alternatives to payday loans.
For more information about managing debt, read our publication on Financial Fitness.
Have you ever been solicited by a payday lender?
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