The Pitfalls of Payday Loans

AIDS Legal Services Project


Payday Loans-Debt image

A payday loan is a high-interest, short-term loan for a small amount- typically $300 or $400 -designed to be repaid with your next paycheck. The only requirement to get this loan is an income (which would include disability benefits) and a bank account.

These types of loans should be avoided if possible. The term or pay-back period of payday loans is so short that it is VERY easy to fall behind and miss a payment. Once you are behind, it can be VERY difficult to get current again and pay off the loan. In some cases, borrowers sign over electronic access to their bank accounts to receive and repay payday loans. This gives the lender direct access to your money. If you are unable to repay the loan when it is due, the lender will add a default fee to the service charge you already owe, making it very easy to fall into a long-term cycle of accumulating more and more debt at truly staggering interest rates.

These Loans typically charge 400% annual interest (APR) or more. The finance charge ranges from $15 to $30 to borrow just $100. For a two-week loan, these finance charges result in interest rates from 390 to 780% APR.

This is why borrowers should consider any possible alternative including a personal loan from family or friends. Try to think creatively. For example, even if you don’t belong to a credit union is there one you can join? A past employer, particularly a government agency, may have a credit union you can join even though you no longer work there. ;A faith based organization or a university you may have attended might have a credit union you can join for a nominal fee and deposit. ;Also think again about how you can reduce your expenses (refer to the first question) or consider an alternative action (see suggestions from first question).

In addition, pay day lenders are not known for their scrupulous business practices and financial abuse abounds. There have been complaints about payments not accurately credited and improper withdrawals from bank accounts. For more information or to file a complaint, details HERE.

Fortunately, Pay Day lenders are regulated and there is good information, including Spanish language found HERE.


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THE CONTENT FOUND HERE WAS CURRENT AT THE TIME OF WRITING (MAY 2020). LAWS AND LEGAL PROCEDURES ARE SUBJECT TO FREQUENT CHANGE AND DIFFERING INTERPRETATIONS. YOU SHOULD SEEK THE COUNSEL OF AN ATTORNEY TO RECEIVE LEGAL ADVICE SPECIFIC TO YOUR SITUATION.