From Payday to Mayday
Fast Cash, EZ Money, a payday loan may be tempting but don't get sucked in.
A typical payday loan is for 1-2 weeks and is appealing to people who don’t have other ways to borrow in an emergency.
For example, let's say you need $250 today to cover your electric bill which is overdue and about to be shut off. You decide to go to the “Fast Cash” payday lender where you post date a check for $300 that corresponds to your pay check (nine days away).
The lender will give you $255 after taking out a fee and interest charge of $45. On pay day the lender deposits the check to the bank. So far so good, the electric bill gets paid. However, come pay day, other bills are demanding your attention and you don't have enough money in the bank to cover all of them.
Back you go to the money store for another loan. Either you pay back the first loan and ask for another, or you “rollover” your loan for another two weeks, both options will incur a second $45 charge.
If your payday loan check “bounces” when the lender deposits it, you will also be charged a “bounced check” fee which is usually around $30, not to mention the overdraft fee of $30 that your bank will charge. Stopping payment on the check or closing your checking account before the check is deposited can cause serious legal consequences depending on your state.
According to a 2009 report by the Center for Responsible Lending, "75% of payday loan volume comes from people who have paid back their initial payday loan but must re-borrow before their next pay period." The report also states that the payday loan industry "churns" or turns over 59 million loans per year which costs borrowers $3.5 billion in fees.
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