Drive down the street, turn on the radio or TV, log on to the Internet – you’ll find them everywhere, those ads for payday loans. Sounds like such a great service, giving you just enough cash to tide you over until your paycheck comes. The way these loans usually work is that a borrower writes a personal check payable to the lender for the amount of the loan plus an extra fee. These loans, by the way, can also be called cash advances, check advances, or deferred deposits, but all the names add up to just one thing – very, very expensive cash.
As a bankruptcy attorney in Indiana, believe me, I see more than my share of payday loans – and I see some very sad results. Cash advances like this are a good example of getting the least benefit at the highest cost.
You do the math: All you want to do is borrow, say, $200 for the next two weeks, just to pay a bill so the creditor will stop harassing you or so your landlord will stop making your life miserable. Maybe you want to do some pre-holiday gift shopping while the sales are on. To get the $200, you write a check to the cash advance people for $230. They agree to hold the check until your next payday in two weeks. Even if you don’t “renew” or “roll over” that loan after two weeks, you’ve just paid 15% for two weeks, which amounts to a whopping 391% Annual Percentage Rate on your money!
The reason payday loans end up being so profitable for the lenders – and so disastrous for the borrowers – is that many people don’t end the game in two weeks. They ask for an extension for another two weeks. Roll over a loan like that three times, and you would end up paying $120 to borrow $200. Talk about “rolling”! People’s finances roll downhill pretty fast at that rate!
If you’re to the point of taking payday loans just to keep the bills paid – the next stop needs to be the office of an attorney who can give you professional advice and help before things go from worse to terrifying. And if you’re not yet to that point, but thought a payday loan would be very convenient just now – Please, think again. They’re the ones getting “paid”; you’re the one getting in trouble. I mean it!