Think again. They may have the lure of quick cash, but they often are a costly mistake. Here’s why: Insane interest rates Payday loan companies are the king of charging extremely high interest rates on their loans, some as high as triple digits. Yes, interest rates can be over 100% in many cases. That is
Think again. They may have the lure of quick cash, but they often are a costly mistake. Here’s why:
Insane interest rates
Payday loan companies are the king of charging extremely high interest rates on their loans, some as high as triple digits. Yes, interest rates can be over 100% in many cases. That is ridiculous! Consider borrowing $500 to help cover bills at the end of the month. An interest rate of even 50% would mean you are on the hook for paying back $250 in interest fees alone, for a total of $750. Chances are, if you didn’t have the $500 to cover bills you aren’t going to be able to afford $750 in repayment.
Tricky payment terms
Most payday loan companies will require you to provide two post-dated checks for the purposes of repayment. This means that after you receive your loan, the payday loan company will cash a check in two weeks from the date of your loan for half of the repayment amount and cash the other check two weeks after that. So if you borrow $500 on the 1st of the month, you will owe $375 on the 15th and another $375 on the 30th. If you can’t afford these repayments you can’t really avoid them either because you left the checks with the company already signed. If you were to try and stop payment on the check you are likely going to find the payday loan company slapping you with sky high penalty fees and making aggressive efforts to collect.
Sick cycle of borrowing
In a recent report by the Consumer Financial Protection Bureau, it was found that more than 80 percent of payday loans are rolled over or followed by another loan within 14 days. Why? To repay the original loan plus interest. The CFPB found that it isn’t uncommon for payday loan borrowers to end up stuck in a cycle of borrowing one loan to payback the original or even subsequent loans, leaving them stuck in a loop of high interest borrowing for years. Further, borrowers who take out three or more loans are likely to pay more overtime in interest fees than the borrowed amount on the very first loan. The slope is quite slippery, and too costly for those quick bucks.
If you are suffering in a vicious payday loan borrowing cycle or find you cannot afford to repay your loan, contact a bankruptcy lawyer in Louisville KY. They can help you stop companies from cashing your repayment checks and work to resolve your debt problems.