Wednesday, May 16, 2007
Contributing editor: Mevish Jaffer
The payday loan industry has recently experienced tremendous growth with existing stores and new ones opening up practically all over the country. It’s quick, easy, and just about anyone; (even someone with bad credit) can be instantly approved for a Florida payday loan as long as they are employed and have a checking account. Yet with all things considered, a cash advance certainly don’t come cheap. Believe it or not, some payday loans have an APR of over 5000%. In fact, a few states have even enforced a full-fledge ban on payday loans due to the high interest rates attached to them. Aside from the states that have made payday loan activities illegal, we are still witnessing more and more payday loan companies opening up around us. So what’s the reasoning behind the payday loan phenomenon? The answer is simply because they are extremely profitable to payday loan companies. Additionally, higher rates have not stopped all borrowers as most continue to apply for payday loans in an effort to take care of their short-term financial needs.
It’s hard to believe that anyone would be willing to pay such outrageous interest rates, but borrowers that turn to a payday loan often find themselves in great financial strain. All they need is some help before their next pay day in order to take care of unexpected bills that might have sprung up on them out of nowhere. It’s not such a bad deal for borrowers as long as they can meet their repayment schedule. However, the real problem occurs when people decide to use payday loans to finance unwarranted expenses such as frivolous shopping sprees, vacations or other things that qualify as non-emergency related spending.
Loan Extension = Loan Addiction
When borrowers are unable to repay the total balance due on their cash advance, they are offered the option to extend their loan. However, in exchange for this “extension” period, they are required to pay pretty big penalty fees. Payday lenders typically secure a borrower’s loan by holding one or more of their personal checks. The biggest dilemma that people face when it comes to payday loans is relying on them frequently as opposed to a one time basis. They are getting into the habit of continually extending their loans and have therefore become addicted to them. Borrowers are going from one lender to the other, often ending up with payday loans from up to 5 companies at a time.
Emergency Solutions Only
Payday loans aren’t going anywhere; in fact, industry trends tell us that they’re pretty much here to stay and that means they are constantly going to be tempting to borrowers who are looking for a quick financial fix. The only solution for people is to use them for emergency loans only! If borrowers do need to use payday loans, they should make sure they are able to meet repayment deadlines. The longer a cash advance is extended, the higher the amount of debt a borrower has potential to accrue.
