Payday lending is becoming an epidemic in middle class and working poor America. Payday lending is where a borrower with no where else to turn to for short term cash infusion borrows money from a lender in whats know as a payday loan. These loans are not secured in the traditional manner of collateral nor are they your standard signature loan. Instead payday loans are “secured” via the lender automatically deducting a borrowers payment directly from their checking account or secured with a post dated check. The problem many Americans face with this type of loan is often times they will miss a payment due to unforeseen circumstances and due to the fact that many of these loans carry an APR pushing past 400%. This often times results in the borrower over-drafting their bank account and/or receiving a bounced check fee and possible criminal prosecution for passing a check that has bounced.
Typical payday loans charge a high fee for every $100 dollars borrowed plus a very high APR which often far surpasses 400% APR. The borrower is supposed to pay back the money the very next paycheck leaving the borrower with two choices. The two choices are to default on the loan then face the NSF fees from the bank when the payday lender attempts to cash the post dated check or auto debits the account and causes the checking account to over draft or the borrower who is now a debtor can choose to renew or roll over the loan. The lender attaches more fees to the rolled over loan and more debt piles up, which then traps the borrower into a long cycle of debt. Nearly 80% of all payday loans in this country end up being rolled over, no other lending industry has such a high turn over rate.
For those who borrow these funds, the funds are rarely ever for luxury items but instead for everyday living expenses such as rent, food or utilities. When the borrower is forced into rolling the loan over they become trapped in a self destructive and ever increasingly pattern of rolling the loan over and over again, in effect becoming an indentured servant of the payday lender. In the industry when a customer rolls a loan over and over again it is known as a loan sequence. Most often the end payments in these loan sequences end in a payment higher than the original loan payment.
There are many unique ways you can avoid ever taking out a payday loan, which include the following:
* Adjusting your federal withholding’s if you normally receive a big refund at the end of the year you are paying to much in taxes, adjusting your with holdings can give you more purchasing power.
* Work with your creditors. In most cases people can arrange payment options with creditors including utility companies. You can even in many cases work something out with the landlord to make payment arrangements, perhaps offering an extra $100 to $150 in order to make such an arrangement, I guarantee the extra $150 going towards rent will be far cheaper than taking out a payday loan.
* You can try to borrow from a peer to peer lending source which often times has a much much lower APR than payday lenders and better repayment terms.
If you must take out one of these loans do your homework, there are a few reputable payday lenders out there, ones who do not charge so much, though these are few and far between. Also make sure you are well informed on your rights and the laws about payday lending in your state, the more you know the better you can do to avoid payday loan scams which are plentiful in this industry.