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The Darker Side of Payday Loans

There are clear advantages to payday loans - nearly everyone qualifies; the loan process is simple and quick; and extra cash can be obtained in a very short time.

The disadvantages might not be so clear.

According to the CFA, the typical payday borrowers are:

  • Younger consumers with limited understanding of finances
  • Consumers deeply in debt
  • Consumers struggling to meet their day-to-day financial obligations
  • Consumers with a history of using high-risk lenders

For consumers in these categories, payday loans may not be such a good idea. Sadly, millions of Americans experience shortages of cash not as an occasional situation, but as a long-term one. Short-term solutions may even lead to a downward spiral of increasing debt.

If payday loans are extended over too long a period, or if a consumer takes one payday loan after another, it will put a strain on his or her financial situation. Payday loan fees are very expensive, particularly if a loan is extended over time. The fee charged for a payday loan is equivalent to a 250-650% Annual Percentage Rate (APR), which is by far one of the most expensive loan options on the market.

A number of payday lenders will automatically renew your loan at the end of the 14 day period. They will only deduct the fee, leaving the consumer to owe a new fee at the end of the next period. If the consumer never takes action to repay the loan, the fee will be deducted repeatedly. A consumer with a $100 loan with a fee of $25 will, by the end of 8 weeks, have paid $100 in fees and still owe the original $100 loan. If the loan is not paid for an entire year, the consumer will have paid $650 in fees on a $100 loan that still isn’t paid back.

If a payday loan gets out of hand this way, please take advantage of some of the alternatives we offer.

* Payday Today is not a payday lender or broker. We provide research and information about payday lenders and products, and are not necessarily affiliated with the companies featured on this site. Availability of products and services varies by state. Not all independent lenders will approve you for a loan or can provide you with up to $1,000 on your first loan.


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