It is becoming more and more common to hear of debt issues due to new wave of financial ruin – the payday loan (PDL). This new phenomenon is striking hard and leaving an ugly mark on many consumers pocketbook. It seems like a good idea at first, borrow a little money if you are short between paydays, pay a fee and the rest is history. Like most things in life that sound to good to be true - this is but another example.
How does a consumer get caught in this sinking ship? Quite easily say experts. It usually begins with one small payday loan – and for some it can stop there. For many others, it turns into an unrelenting cycle of renewals and additional loans to afford the renewal fees. This all comes together in a murky pool of debt stricken consumers.
PDL companies make their money by charging soaring interest rates and fees. On top of that, they offer their “renewal” option to further fatten their wallets. Typically, a person can end up paying three to ten times easily what they originally borrowed Once a person starts to renew their payday loans, they have a hard time paying them back. Most PDL companies that are operating on the Internet use direct deposit and withdrawal methods in and out of the consumer’s checking account.
Each time a person renews his or her loan, the company takes a flat fee out of the account, which is commonly very high. Some findings indicate that a person pays as much as $60 on a two-week renewal for a $200 loan with nothing being taken off the principal.
Unlike other types of unsecured debt, PDL’s cannot be consolidated with most debt consolidation programs. They are a separate entity of their own, partly because they are not legally binding. Because of this, it is hard for consumers to get out from underneath of them.
Although states usually have annual interest rate caps in place for small loans, they typically do not have the same guard set up for payday loans. In some states, the interest rate can be up to ten times higher for payday loans versus regular small loans. This problem alone sparks the need for legislature to put down stricter laws with PDL companies.
Strides have been taken by legislature to set up guidelines, but until they are set or PDL companies cease to exist, the problem for many consumers facing debt and credit issues continues to be a problem. With few places to turn, most consumers that find themselves in this predicament have an uphill battle ahead of them to try to get out of the PDL trap and back on their feet.