Repeat Payday Loans – Why they Eventually Become Predators

The payday loans are considered as debts that will capture the borrower in a debt cycle that will continue for several years.   Many people across the United States live only for their salaries.  This would mean that people will simply not have enough to spend on other expenses and emergencies.  There are options to the payday loan lenders.   You have the choice of borrowing money from your relatives, your parents, friends, co-workers, or even take a cash advance from your employer.  Many financial experts actually recommend these alternatives compared to the loans or debts.  Studies have shown that the loans will only provide you short term relief from the expenses that you have.  However, these loans are designed to catch the debtor in a debt cycle that will be never ending.

The Center for Responsible Lending conducted several surveys that showed at least three quarters of the loan volume of the payday industry came from the renewals of the older loans.  This means that when the loans become due, the borrower has no other choice but to re-borrow the loan as they still do not have enough money to pay for their expenses.  This repeated borrowing is a process that is often seen as predatory as it creeps up and eats away on the financial income of the household.  Furthermore, the studies conducted by the CLR have shown that at least 80 percent of the payday debtors have conducted multiple transactions to save themselves from the charges of late payments and penalties.

The rapid rate of re-borrowing will show that most of the debtors who take out the payday debt will not clear it out before taking out a new loan.  For example, a loan of $300 with a $50 for 14 days when extended will have a total charge of $100.  This means that in 12 months of the loan extension, you would have already paid $1,200 in interest, which is far higher than the value of the cash that you have received from the lender.

In fact, if you are not careful enough and let the loans be paid on time, then you can easily increase the debt to thousands of dollars.  The business of the payday lenders is to create a product that will not easily be paid by the borrower.  On this reason alone, it is important that you find alternative means to the cash.  If you cannot do so, then take out the loan and assure yourself to pay it and not extend it when it becomes due.


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