"Can I just get enough to hold me over 'til payday?" It's a common enough request, given that everyone has unexpected expenses that pop up from time to time. If you ask it of a friend, family member or even your employer, the worst that can happen is they say no. If you make that request of a payday loan company, the worst that can happen is that they say yes.
Throughout the Atlanta area, payday loan companies have set up shop to prey on the working poor. The concept seems harmless, even helpful. They advance a borrower a small amount (under $500) for a short term. But fees and high-interest rates prove to be a trap.
How payday loans snare borrowers
A worker who's struggling week to week needs an advance on his next paycheck or he'll miss payment on a bill and incur a late fee. So he goes to a payday loan company, where they offer to extend the cash for a fee that seems small, but is actually a large percentage of the loan. As collateral, he leaves a post-dated check or an authorization for an electronic fund transfer from a bank account. The parties agree he'll repay the loan with his next paycheck.
When payday rolls around, the borrower can (1) claim his post-dated check by settling the loan in cash, (2) allow the loan company to deposit the check or (3) extend the loan for another short period.
Why are payday loans such a trap?
- The loan's term is so short, often the borrower can't pay off all the principal within the loan period.
- When the borrower can't repay the loan in full, the company requires him to renew the loan for second term. The company charges high fees each time the loan rolls over.
- The loan company charges high interest. Along with fees, the extra charges on the principal can be more than 500 percent.
- The loan company has no incentive to confer with the borrower before depositing the post-dated check he left as collateral. So even if there's a verbal understanding they won't act until they hear from the borrower, they can easily deposit the check anyway. Often, the check will bounce because borrower has insufficient funds in the account, so the borrower gets hit with additional fees from the bank and the loan company.
If you need cash before your next paycheck, request an advance from your employer. It's worth a little embarrassment to avoid a big mistake, like falling into the payday loan trap. If not your employer, perhaps a relative or friend can advance you. Or, if you belong to a credit union, you may be eligible for a small loan at low interest.
DebtStoppers provides professional assistance in Atlanta to manage your debt responsibly
Even if you've already fallen into the payday loan trap, it's not too late to get effective help managing your debt. Atlanta DebtStoppers offers a free consultation and debt analysis from a qualified bankruptcy attorney. Call us at 404.750.4706 or contact us online.