Why Are Payday Loans So Bad? By Edward Maggio,Esq.

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Edward Maggio, Esq. says - Essentially, if you have an unexpected expense (or an expected expense that you just cannot pay), you can walk into a payday lender, make out a check to the lender, date it for the day after your next paycheck is going to come in, and walk out with what is essentially a paycheck advance.

Sounds like a pretty good deal, right? Except that payday loans, because of their extremely short terms (usually two weeks or less), have extremely high interest rates. Those rates might be fixed and you might know the exact price of that loan when you sit down to write a check, but that doesn’t make them any less unreasonable.

Where most people run into trouble is actually paying the loan back. While you might provide a post-dated check to the lender, which they automatically deposit after your paycheck comes through, they also take cash or expect you to come back and pay the debt in person. If the person is even a day late, he can be slammed with massive fees. If the loan is allowed to roll over, it can quickly become too expensive to pay back. For example, a $500 loan that rolls over only eight times (eight months), can end up costing more than $700.

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• Publié par: PatrickMSumner
• Publié le: 17 avril 2015
• Nombre de lectures: 3
• Langue: English

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Why Are Payday Loans So Bad?
By Edward Maggio, Esq.

What are payday loans?

Edward Maggio, Esq. says - Essentially, if you have an unexpected expense (or an
expected expense that you just cannot pay), you can walk into a payday lender, make
out a check to the lender, date it for the day after your next paycheck is going to come
in, and walk out with what is essentially a paycheck advance.

Sounds like a pretty good deal, right? Except that payday loans, because of their
extremely short terms (usually two weeks or less), have extremely high interest rates.
Those rates might be fixed and you might know the exact price of that loan when you sit
down to write a check, but that doesn’t make them any less unreasonable.

Where most people run into trouble is actually paying the loan back. While you might
provide a post-dated check to the lender, which they automatically deposit after your
paycheck comes through, they also take cash or expect you to come back and pay the
debt in person. If the person is even a day late, he can be slammed with massive
fees. If the loan is allowed to roll over, it can quickly become too expensive to pay back.
For example, a $500 loan that rolls over only eight times (eight months), can end up
costing more than $700.

When you first hear that a payday loan’s interest rate is something like 16%, which
might not sound that high—until you realize that unlike mortgages, car loans, and just
about any other kind of loan, the term on a payday loan is only a month. If you let it roll
over even once, you will be accumulating debt like a snowball accumulates snow as it
rolls down a hill, faster and faster and in larger and larger quantities.

Payday Loans Prolong the Cycle of Debt

Payday lenders tout themselves as easy solutions to one-time, unexpected expenses.
The problem is that the people most likely to take out payday loans do not have any
savings or credit to fall back on. Because no credit check is required in order to get one
of these loans, members of the military, the elderly, and immigrants are most likely to
use these loans.

Even if they are able to pay the loan after their paycheck comes through, that person is
now left with a deficit the next month. If they did not have excess funds to pay for that
expenditure this month, they likely will not have the excess funds to cover it next month.
There is now a gaping hole in their budget, which is often filled with yet another payday
loan, this time used not to cover a car repair or medical bill, but to cover rent or food.
Every month, the cycle continues.

Preys on Low-Income Communities
You don’t see payday lenders popping up in high-rent districts. They’re most popular in
areas of cities and towns that are already financially suffering, and unlike other types of
loans that actually endeavor to lift people out of poverty, payday loans only serve to
keep their debtors poor.

Why? Because that’s how they make their money. If everyone was able to repay their
loans on time and in full, they would make only tiny profits. They are leaps and bounds
more expensive than every other kind of loan or line of credit.

What about Regulations?

Edward Maggio, Esq. explains that these kinds of loans are extremely difficult to
regulate. Because of their month-long terms, they can make use of a loophole in usury
laws (which should protect people from money lenders who try to charge insanely high
interest rates). Most states require APR be less than 18% to 42%, depending on the
state, city, local laws, etc. Because payday loans are supposed to be paid off long
before a year elapses, lenders don’t have to abide by these laws in the same way that
other lenders do.

The average lender charges about $17 for every $100 you borrow. This can make your
APR up to 640%, which is more than ten times more expensive than even the most
expensive credit cards on the market. Research shows that the average payday debtor
pays more than double what their loan is worth just in interest—and there are no
regulations in place to stop this kind of lending, despite this being the only kind of loan
that many people can qualify for when in desperate need of funds.
To know more about Edward Maggio, Esq. visit at :
https://www.linkedin.com/pub/dir/Edward/Maggio