Payday loans might seem like a convenient way to get cash quickly when you are stuck in a bind, but these types of loans can actually put you at great risk. For some payday loan borrowers, these loans are what led them down the path to bankruptcy.
What are Payday Loans?
Lending establishments that offer payday loans are not affiliated with the big-name banks you might be used to dealing with. They are usually brick-and-mortar stores, sometimes located in strip malls or stand-alone buildings. These lenders are more prevalent in lower income areas.
Payday loan lenders make it easy for you to borrow small to moderate sums of money, as long as you are willing to accept high interest rates and strict loan terms. In most cases, payment is due within a short period of time (the borrower’s next payday) and if payment is not made on time, there are stiff penalties. It can be extremely difficult to meet the loan obligations and keep up with payments, especially since those who utilize payday loan offers are usually struggling financially in the first place.
Research has shown that despite payday loans being an apparently convenient borrowing option and typically lending only a few hundred dollars per loan, they do increase the probability of filing for bankruptcy. In one study, researchers Paige Marta Skiba of Vanderbilt University - Law School and Jeremy Tobacman of The Wharton School, University of Pennsylvania found that payday loans lure borrowers in with interest rates that appear reasonable, but are based on only a few days or weeks.
For instance, a loan with a rate of 18 percent for two weeks actually has a total interest percentage of more than 450 percent. The seemingly reasonable terms of the loan are only reasonable if you’re financially sound enough to pay back the loan in its entirety within a very short period of time – something most payday loan borrowers are unable to do. Even if you are able to pay a portion of the loan within a short period, you are still facing a hefty sum due if you carry the balance for even a few months.
What to Do If Payday Loans Have Worsened Your Financial Challenges
You shouldn’t feel guilty or ashamed if payday loans have made it difficult for you to improve your financial situation. Many of these lenders prey on people faced with difficult financial situations and take advantage of them when they are at their most desperate. The best thing you can do is avoid payday loans, but if this is not an option, you need to do your best to pay the loan off as quickly as possible.
If payday loans have created a difficult financial situation for you or you are stuck in a cycle of using payday loans on a regular basis, it might be time to take drastic action. To discuss your financial situation with an experienced professional, contact the law office of Frank J. LaPerch, PC at 845.942.5500 for more information.