You see them everywhere. Little storefronts on every corner, with bright neon signs proclaiming that it's OK if you're broke and payday is 10 days away - they can help!
Payday loans are the up and coming business to be in these days. For many it seems like an attractive deal - get an advance on your next paycheck by writing a personal check for the lender to hold, then trade cash for the check on payday.
One little problem. You have to pay back considerably more than you borrow. At first it may not seem like a lot - $15 to $20 per hundred per two-week period - but they will usually offer you more than $100 so that will be multiplied.
An additional fee for loan acquirement is commonly added to the amount borrowed, so you don't have to pay any money up front - but you will have to pay the interest on that amount is well when the loan comes due.
The first time you borrow, you may be in a real bind - you're a stay-at-home mom, and the car broke down, the baby got sick, or you needed diapers, medicine or groceries. You pay the loan back on time, grimacing a little about the fees, but glad you had the option available when an emergency arose.
You have just entered the payday loan trap. The seed has been planted in the back of your mind, the false security of money available when you need it. The reason these companies are popping up all over the country is that there is enough business to support almost an indefinite amount of them - a staggering amount of their business comes from repeat customers.
Eventually you may get into another muddle - it might not even be that bad, but the solution of another payday loan is so tempting! You might even be able to rationalize away the fees involved by balancing them against the projected inconvenience of not having the cash.
You've taken the bait. The payday loan goes from an emergency-only item to a convenience to a necessity.
Most payday loan customers end up renewing their loan, which means paying the fees and incurring a new set, and a few paydays later you will be struggling just to come up with the interest. You have effectively added yet another expense to your already strained budget in the form of a loan to pay a loan to pay a loan.
The trap is shut. You are caught in a vicious circle, and then they lay on the double whammy. Around the corner is another payday loan office that deals through another financial institution, where you can get a loan to at least pay of the interest on the first one.
Worse, maybe you run across a company that offers you a seemingly more attractive secured loan - all you have to do is leave your car title. The downward spiral continues, and eventually there will come a week when you can't quite manage a payment - and one of the payday loan checks will bounce.
I could finish the story, but I'm sure you see the point. This type of scenario usually ends very badly, with a ruined bank account, bad credit and still more debt. It is almost guaranteed that you will be worse off than if you had never taken the loan in the first place.
Moral of the story? Never take out a payday loan. Not once. Not ever.
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