Sifting Through the Payday Lenders

Every week thousands of people feel the crunch of the holidays, get caught off guard by an emergency, or simply didn’t budget well and find themselves in a financial pinch. More and more this group find themselves turning to hard money loans such as payday loans. True it may solve the immediate problem but from there most find themselves in a much bigger hole than when they started as the interest can really pile up if you don’t pay them off in a timely manner. Simply put, that is the danger when it comes to loans that fall into the short-term, hard money, category. They may seem like a way out but they often are a way in to bigger and more substantial debt.

If you are going to undertake such an agreement there are some things to beware of, or to flat out avoid. First and foremost the loan itself is meant to be a solution to a short term problem, so make sure it remains just that, a short term problem and pay the loan off right away otherwise the negative interest will really compound against you, and end up well above market rate interest. Even higher than a bad car loan. Twelve million Americans are trapped every year in a cycle of 400% interest payday loans, a 36% cap on annual interest springs the trap.

Fast Facts–Payday Loans

  • Since its inception in the 1990s, the payday lending industry has established over 22,000 locations which originate an estimated $27 billion in annual loan volume.
  • Nationally, there are more than two payday lending storefronts for every Starbucks location.
  • The typical two-week payday loan has an annual interest rate ranging from 391 to 521 percent.
  • The“churning” of existing borrowers’ loans every two weeks accounts for three-fourths of all payday loan volume.
  • Repeated payday loans result in $3.5 billion in fees each year.
  • Loans to non-repeat borrowers account for just two percent of the payday loan volume.
  • The average payday borrower has nine transactions per year.
  • 90% of the payday lending business is generated by borrowers with five or more loans per year, and over 60% of business is generated by borrowers with 12 or more loans per year.
  • If a typical payday loan of $325 is flipped eight times, the borrower will owe $468 in interest; to fully repay the loan and principal, the borrower will need to pay $793.
  • The typical payday borrower remains in payday loan debt for 212 days of the year.
  • From 2008-2010, voters in three states have said ‘NO’ to triple digit interest rates when their state legislatures did not: Arizona, Montana and Ohio.
  • Seventeen states and the District of Columbia have enacted double-digit rate caps on payday loans.
  • Studies have shown that payday borrowers are more likely to have credit card delinquency, unpaid medical bills, overdraft fees leading to closed bank accounts, and even bankruptcy.





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