There’s a figure out there that shows that in 2010, 12 million United States adults had a payday loan. In addition to that, nearly 6% of Americans have used a payday loan at some point in the last five years. That’s a lot of people who are funding these loan companies, which many believe are predatory.
Often, the people who rely on short-term loans are parents, separated or divorced people, and others who struggle to get by. The majority of those who take out these loans have an income of approximately $40,000 a year and do not have a university degree.
This report also shows that more than 50% of these people are female, white, and in the age range of 25 and 44. In addition, African-Americans are more likely to use these loans, despite being a smaller section of the overall population. However, the fact remains that many people take out a payday loan at one point or another. The problem is taking out one loan can lead to taking out additional loans.
The Real Cost of Payday Loans
Based on the report mentioned, most people who use payday loans take out about eight loans a year, with each loan averaging $375. They also end up paying about $520 in interest. This means that most people who use payday loans are actually using them as a high-interest credit line, expected to fix short-term problems. The issue is that these short-term loans can turn into long-term problems of their own. However, that is far from the only problem associated with a payday loan.
Last Resort Loans
People who feel they have nowhere to turn, and who are desperate, turn to payday loans as a last resort. The problem with this is that one payday loan can turn into two, which turns into three, and so forth. This leads to the individual being in debt for months or even years due to what was initially a single payday loan to get out of a complicated one-time situation. Once that process starts, it’s hard to stop it. Nobody wants debt but drowning in it leads to even more debt.
Borrowing Begets Borrowing
When someone takes out a payday loan, it’s similar to taking out a loan on their upcoming paycheck to deal with the expenses of today. In fact, most payday loans are taken out for recurring bills, like medical expenses, car payments, or utility bills. These loans are sometimes used for emergencies, but this is less common. In fact, the person who is taking out payday loans will be in an even more complicated situation if an emergency comes up, due to having numerous payday loan bills to pay off, on top of the typical everyday bills.
Payday Loan Cycle
The payday loan industry capitalizes on people who end up in a cycle of taking out loans more than once. For instance, someone who makes $40,000 a year may have a payday every other week that is around $1,300. If that person takes out the average loan of $375, that drops their paycheck to $925 (or less if there is interest charged). This makes it even harder to keep up with all the bills, leading to another payday loan being taken out. This continues over and over until the situation is dire.
Understanding the Terms
If you find that you do need to take out a payday loan, it’s crucial that you read all the documents and understand all the terms of the loan. The lender is going to be providing you money, but at the end of the day, the company’s goal is to make money. Make absolutely sure that you won’t be paying back too much money. In addition, make certain that you can pay the loan back without needing to apply for a second loan.
Avoiding Payday Loans
While it may feel as if there are no other avenues to turn to, choosing anything other than a payday loan is likely to be a better option. We’ll list some alternatives to the payday loan below:
- Use your credit card, even if you need to get a cash advance. This will be less expensive than getting a payday loan. You can pay it off when you get paid to avoid any extra interest charges.
- Contact your creditors and determine whether you can take a little extra time to pay a bill. They may also be able to provide you with a repayment plan. You never know what possibilities you have until you check.
- Put off the expense until you are able to pay for it. This is not always an option, but may be in some cases. For instance, if you need your car repaired, but cannot afford it, consider public transit or riding with a coworker in the meantime.
- Ask a member of your family or a friend for a loan until you get paid next.
- Borrow from a small loan lender, such as a credit union. Of course, you should ensure that you understand all the fees and terms before you sign on the dotted line.
- Take on odd jobs or get a part-time job to cover unexpected expenses and build a buffer for emergencies in the future.
Solutions to Payday Loan Debt
Perhaps you’ve already taken out a number of payday loans and are concerned about how to pay them all off. This is a common experience and can lead to stress and anxiety, as payday loans often have varied due dates, interest rates, and fees associated with them.
One option you have is to speak with a payday loan consolidation organization. These companies can assist you in breaking the payday loan cycle. Rather than paying many different companies each month, you can make a single monthly payment. If you’re looking for relief from payday loans, get in touch with Real PDL Help today.