The Risks of Quick Money
With consumer debt levels increasing loan offices are popping up in strip malls and corner shops around America. These lenders offer payday loans, check cashing with a payday delay, or loans on car titles. Their intended market does not consist of financially solvent individuals, but rather the poor and lower middle class who may be struggling paycheck to paycheck. While individuals and families may think that these are quick fix options to their financial problems they may end up with very high interest rates and rapidly escalating debt. In fact, some people will end up borrowing from one payday loan office to pay off the title loan on the car, and then repeating this cycle over and over again. The vicious cycle of “robbing Peter to pay Paul” may quickly put you in a position where you are unable to satisfy all of your creditors.
Paid on time, a two week payday loan is apt to cost fifteen to twenty dollars in fees and interest per hundred borrowed. In the short term, this likely does not seem so bad since you will be able to get that bill paid or buy those Christmas presents. For many people however, when the due date comes around, the only option is to roll over the loan and accrue more late fees, penalties, and interest. You may eventually find yourself in a position where most of your monthly payment is going primarily towards interest and you are hardly making a dent in the original principle amount. The average payday loan customer takes out eleven such loans a year.
The government has deemed payday lending such a problem with enlisted military that there is now a usury rate (a legal upper limit on interest) of thirty-six percent annually. Military personnel have been prime targets for lenders. With reliable paychecks, but low salaries, many families and individuals have suffered financial hardship due to short-term payday loans. This will hopefully eliminate what congress called “predatory lending” to military personnel, and clearly illustrates the unethical potential inherent in the world of high-risk payday and title loans.
Some banks, credit unions, city and state governments and other entities are working toward regulations and control of the questionable short-term lenders. Regulations on payday loans include limits on interest rates, and operating policies, including rollover prevention, requiring bonding, insisting on ethical and legal operating procedures, and proper record-keeping. Some lobbyists are working to make these regulations legally binding on a larger scale. An increasing number of lenders are also taking positive steps by offering short-term loans contingent on enrollment in debt management classes.
What options are available if you are in financial crisis? If the crisis concerns an immediate and necessary bill, call your creditors. Many creditors, from your utility company to your credit card company will work with you to make reasonable repayment arrangements. If you are struggling to the point of considering payday loans, then consumer credit counseling services or a debt settlement program may be appropriate. If you are living paycheck to paycheck, and simply need funds for emergencies, consider working a second job to provide a savings cushion, or reducing your overall monthly spending.