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The
Payday Loan Problem
The Facts: You take
out a Payday loan for $1000. In order to do this you give your
checking account information to your creditor so that every 2
weeks your account can be debited for either the full amount
plus a fee or, (if you cannot afford this), just a 'renewal fee'
to 'roll over' the loan to your next pay period. The renewal
fees are typically between $10-$15 for every hundred dollars
that you borrowed. This usually equates to an annual interest
rate of about 325% and possibly much more.
NOTE- The
renewal fees and annual interest rates vary based on the
individual Payday loan company.
The Problem: Most
people can only afford the renewal fees. Renewal fees most
likely do not go towards what you borrowed. This means every 2
weeks you will pay fees so you can owe the same amount of money
on your next payday! (An ingenious structure for the creditor).
Click here
to view a graphical example of how the math can work
if you can only afford renewal fees.
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