Three Ways Payday Loans Pave The Road To Bankruptcy
- Payday Loans are designed to make you “broke.” With interest rates that equal as much as 400% payday loans are just never a good deal. Even loan sharks often have better rates. Many people take out payday loans because they are trying to weather some financial crisis, such as a missed mortgage payment or car payment; but they often end up in a worse situation because they cannot afford to repay the loan because of the high interest rate. Let’s say you borrowed $700 via a payday loan. A typical payday lender will charge around $120 for a $700 dollar loan and make it due by your next payday. That means that you will owe $820. What most people do is only pay the interest (a maybe a little of the principal) over the course of two to three months. If you did this for three months you could pay out $360 just in interest!
- Payday loans can ruin your finances. Remember, payday lenders want repeat customers. They prefer individuals who don’t pay their loan off in a short amount of time, that’s why the loans are designed to keep you coming back for new loans. If you’re paying out $120 in interest on a payday loan for months, that doesn’t leave much room for savings making you more vulnerable to financial disaster.
- Payday loans are considered debt and if you don’t pay payday lenders will come after you. Debtors who use payday loans are particularly vulnerable when they are unable to repay the debt. Just like other creditors, payday lenders can take collections action against you, file lawsuits and even garnish your wages if they have a court judgment. Once payday lenders win a lawsuit and have a judgment, most borrowers are forced to consider bankruptcy. Only bankruptcy can discharge the payday loan.