To Payday or Not to Payday? (3 of 3) – The Final Act

To Payday or Not to Payday

What do Tyler Perry movies and payday loans all have in common? Predictable endings. When you take out a payday loan, you know what the result will be: debt, mounting fees, more loans.

Rather than wait for this final act to unfold, borrowers should skip the drama altogether and go with a safe alternative to payday loans. If you do find yourself entering into a payday loan agreement, here are three results you can expect to happen to you and your finances:

Harassment

The harassment from payday lenders is unlike any other. It’s relentless. They’ll call you, family members, even your work. They often threaten legal action. Payday lenders want to push borrowers to the point of such frustration that they’ll not only continue to make payments on current loans, but also extend their terms and take out additional new loans. Why? Because that’s how payday lenders make money—through repeat borrowers.

For this very reason, some states have managed to pass legislation that requires mandatory “cooling-off periods”, limiting the amount of loans a lender can issue to a borrower within a specified timeframe.[1] But there are no “cooling-off periods” for the collectors, they’re always on the clock.

Overdraft Fees

Payday lenders argue that their service is an alternative to racking up bank overdraft fees, typically at $35 per overdraft. The Payday Loans Organization has said, “Used correctly and for the right purpose, cash advance loan and payday loan programs can prove to be much more economical, convenient, and efficient.”[2] But with a payday loan, you’re still just as likely to incur that overdraft fee plus the lender’s high interest rates and fees.

In order to receive a payday loan, you either write a personal check (post-dated for your next payday) or give the lender access to your bank account so they can withdraw their money directly. If you don’t have the money when it comes time to pay up, your account is overdrawn. So now, on top of having no funds to cover any of life’s expenses (you know, like food? Gas? Rent?) you’re being charged overdraft fees by your bank because you carry a negative balance.

Debt Cycles

When your debt is due and you don’t have the money to repay it, you can find yourself “rolling” the loan over, or taking out other loans to cover these payments. This is a debt cycle. Situations like these can be incredibly stressful and also inflict long-term damage to your finances (read more in Payday Loan Rollover: How Short-Term Loans Turn Into Long-Term Debt).

In an interview with The Huffington Post, Ellen Harnick of the Center for Responsible Lending said, “Lenders market the loans as a short-term quick fix, but customers end up stuck in staggeringly high-cost debt for extended periods”. While payday loans are advertised as 14-day loan products, the average borrower ends up in debt for five months. Additionally, a loan of $300 actually costs borrowers, on average, $800 total.[3] Disgusting.

If you are trapped in a debt cycle, OppLoans can help. We offer loans with higher amounts and much lower interest. With our personal installment loans, you can get the predatory lenders off your back and make payments that fit comfortably within your budget. We’re here if you need us, because you deserve better than a payday loan.

References:

[1] Douglas, Danielle. “Regulators put tougher restrictions on bank payday loans.” WashingtonPost.com Accessed May 14, 2016.

[2] Slade, David. “Payday loans, overdraft fees can drain finances.” PostandCourier.com Accessed May 14, 2016.

[3] Walsh, Ben. “Payday Loan Industry Admits ‘Very Few’ Borrowers Repay Their Loans” HuffingtonPost.com Accessed May 14, 2016.

Blog Series: To Payday or Not to Payday
Part 1: Skipping the Drama of Payday Loans
Part 2: Predatory Lending’s Second Act
Part 3: The Final Act