Everyone knows the general idea behind payday loans: Something unexpected comes up and you need a “one time, short-term” fast cash solution. You have flat and need a new tire, your child is sick and you miss work and lose pay to care for him; but still need to pay all your bills. Whatever the situation is this month, payday loans seem like a quick-fix, easy solution for monthly credit card payments, utility bills, daycare and other monthly bills when cash is tight.
We also all know how payday loans work: You’re running short on cash so you head to your nearest payday loan provider (they’re everywhere so you don’t need to go too far). You show them proof of your last paycheck, tell them how much money you need and when your next pay period ends and they issues funds to you immediately. In exchange, you cut them a post-dated check that will cover both the original amount and their exceptionally high interest rates.
Seems pretty straightforward, right? But what happens when you need to renew your payday loan? Or when the check you gave them bounces, because let’s face it, money is tight; how will you cover those fees and pay back the principal loan?
And just like that you’re caught in the payday loan cycle.
Payday loans seem like a good idea because you need the cash ASAP but what are the true costs?
The average Payday loan has an ARP between 391% and 443%
That means if you take out a $1000 payday loan on the 2nd and your ARP rate is on the low end of the scale — let’s give it 391% — by the time your payday rolls around on the 16th you’ll owe an additional $150 to your payday loan provider. Now, $150 may not seem like much, you may even think it’s worth it; but did you know that, according to a 2015 study done by The Center for Responsible Lending, over 90% of all payday loans are not paid back in their initial time period. In fact, most of these “onetime short-term” loans are extended for an average of 6 months. That means that even if your payday loan interest rate was on the low end of average (we’ll keep it at 391%ARP) in 6 months you’ll owe your loan provider $1800 in interest alone. That’s no small sum.
In the end, payday loans almost always cost more than they’re worth and can easily create a cycle of borrowing from one institution to pay back another and another.
The truth is that payday loans are a short-term “solution” to a long-term problem and, like putting a Band-Aid on a cut that clearly needs stitches—they won’t fix anything. So what are your options for ending the payday loan cycle and the debt that causes it? Call an experienced Baton Rouge and Metairie debt relief attorney, today, to discover your payday loan debt relief options. Our local attorneys offer free debt relief consultations, call to schedule yours, today!