Escape the Payday Predator (2 of 3): 3 Common Tactics Meant to Trap You in Debt

Payday Predator 1038 x 268px

Payday lenders use three primary tactics to trap borrowers in debt. Knowing these tactics will help you identify and avoid predatory lenders who use them, saving you a lot of money and stress.

Payday loans have been in the news a lot lately. Lawmakers in many states are currently trying to strengthen regulation on financial products marketed to people who cannot afford the unreasonable interest rates or short terms. Let this information help you confidently navigate decisions that may have lasting impacts on your financial future.

Debt Trap Tactic 1: Interest Rates and Fees

The average interest on payday loans is between 400-1,200% APR (Annual Percentage Rate). Rates vary wildly depending on where you live and who you borrow from. Let’s take a look at what this number really means for the borrower.

A payday loan will cost between $15 and $30 in finance charges and interest for every $100 borrowed. The average payday loan received in America is for $375. If this loan was repaid within the terms (usually a two-week repayment period), it could cost the borrower as much as $487*. If that seems outrageous (and it should), consider that this would be the cost if the loan was paid on time, which, as we’ll soon see, lenders make difficult to achieve.1

Debt Trap Tactic 2: Short Terms

Coming up with additional income or savings is not easy. Most of us have a general idea about how much we’ll take home each month and what our regular expenses will be—having to come up with an additional $100 on short notice sounds next to impossible. That’s exactly what payday lenders are counting on though, and they are making a killing off of betting against consumers.

The majority of payday loans have terms of just two weeks, which is the average pay cycle for most people. That’s fourteen days to come up with the amount borrowed, plus the interest and fees outlined above. Is it hot in here? We’re sweating just thinking about it.

Debt Trap Tactic 3: Rollover

Just in case high interest and short terms weren’t enough to trap you in debt, payday lenders have another tactic up their sleeves. This is one that frequently delivers the final and most devastating blow to borrowers and their finances—rollover.

What makes rollover so dangerous? For starters, it’s frequently presented as a helpful service to borrowers. The payday lender will definitely act as if they are doing you a favor by allowing you to extend your repayment terms. Rolling over your loan is not a favor and should be avoided at all costs. This is the tactic that turns something marketed as a “short-term solution” into a “long-term problem”.

A study by The Pew Charitable Trusts found that, due to rollover practices, the average borrower is in debt with payday loans for about five months out of the year.2 These lenders only really profit when borrowers are forced to extend their terms, make more payments, pay more interest, and take out additional payday loans to repay existing loans. When asked about repeat borrowers, one industry analyst said that “In a state with a $15 per $100 rate, a lender will need a new customer to take out 4 to 5 loans before that customer becomes profitable”. Read more about repeat payday borrowers in the article Studies Show “Repeat-Use” for Payday Customers is Common.

Payday lenders use three primary tactics to trap consumers in debt–interest rates and fees, short terms, and rollover. Don’t fall prey to the predatory lenders. Consider a personal installment loan from OppLoans. We offer longer terms, higher loan amounts, and APRs that are as much as 125% lower than most payday loans. You deserve much better than a payday loan. We’ll be here when you need us.

*Example calculated using $30 per $100 finance charge rate.


1. “How Payday Loans Work”. Payday Loan Consumer Information by Consumer Federation of America. Accessed April 26, 2016.
2. “Payday Lending In America: Who Borrows, Where They Borrow, and Why”. The Pew Charitable Trusts. Accessed April 26, 2016.

Blog Series: Escape the Payday Predator
Part 1: Identify a Predatory Lender with these 5 Warning Signs
Part 2: Three Common Tactics Meant to Trap You in Debt
Part 3: Fact-Checking the Payday Lenders

The information contained herein is provided for free and is to be used for educational and informational purposes only. We are not a credit repair organization as defined under federal or state law and we do not provide "credit repair" services or advice or assistance regarding "rebuilding" or "improving" your credit. Articles provided in connection with this blog are general in nature, provided for informational purposes only and are not a substitute for individualized professional advice. We make no representation that we will improve or attempt to improve your credit record, history, or rating through the use of the resources provided through the OppLoans blog.