Did you know that most payday loan borrowers have either a love or hate relationship with them? Every year around 12 million people get payday loans that average $375 each. However, only about 14% of these people have enough money to pay back the $430 in principal and fees they’re supposed to pay after the initial two weeks.
What borrowers do instead
What many of them do instead of paying off the loan is renew it as the $55 fee they will have to pay feels more affordable. This can easily lead to a five-month cycle where the borrower owes a total of $520 in fees, plus the principal.
How they’re advertised
The payday loan companies tend to advertise their loans as a source of cash for emergencies such as an unexpected car repair, medical bill or the like. However, 86% of those who use payday loans say they have a problem covering their recurring expenses such as their rent or utility bills. Sadly enough, 41% of borrowers have gotten another loan, pawned or sold their possessions, used their tax refunds or borrowed from family or friends.
Take advantage of borrowers
More than half of all people who get payday loans feel that they’ve been taken advantage of. But at the same time, they rate their customer service highly and 48% of the people who get these loans think they help borrowers more than harm them. In fact, 60% say they would get them again. And 37% said they were so frantic they would take out a payday loan no matter how bad the terms how much it costs.
A viscous cycle
The biggest danger of a payday loan is when you start rolling the first one over into a second two weeks and the second two weeks into a third and so on. This can lead to a huge amount of debt that you might not ever be able to pay back.
Check out the alternatives
Even though a payday loan can seem like a quick way to get help in the short term and relieve some of your anxieties, there are other options that might be better. For example, you might be able ask your employer for a cash advance on your salary. This would be about the same as a payday loan except you would probably not have to pay an excessive fee. You might also be able to get a personal line of credit from your bank or credit union or take on a second job. Both these alternatives would have a lower interest rate than a payday loan and more time to pay back the money.
Consumer credit counseling
You might also consider the option of consumer credit counseling. A credit-counseling agency could help you develop a debt management plan that would probably get you out of debt in about five years. Plus, it would work with your creditors to get your interest rates reduced and your debt payment plan approved.