My clients come to me in need of a fresh start. They are getting calls from collection agencies left and right and are often using credit to buy the necessities such as food. Credit cards and mortgages are considered long-term loans.
Payday loans are the most common type of short-term, unsecured lending, offering a borrower an advance on his or her next paycheck. Every city has at least one payday loan store. Loans from payday lenders are usually between $500 and $1,000, based on the borrower’s pay amount. These loans are intended to be repaid from the borrower’s upcoming paycheck, typically within two weeks. The average borrower earns an estimated $30,000 per year, and nearly 58 percent of these borrowers find it difficult to meet their monthly expense obligations.
Qualifying for a payday loan is very easy. There is no credit check performed to qualify for a payday loan. Lenders require verification of employment and income, as well as valid identification to be eligible.
Payday loans are intended to be used to cover unexpected expenses, like an unexpected vehicle repair or medical bill. Seven out of 10 payday loan borrowers may also use their loan to pay for expected bills each month, including utilities, car payments, or other debt obligations.
Below are some of the common uses of payday loans:
- Gas and groceries
- Mortgage payments
- Car payments
- Credit card payments
Here are some of the things you should know before taking out a payday loan:
- 12 million people borrow nearly $50 billion a year through payday loans.
- The rates charged on payday loans can be up to 35 times those charged on credit card loans and 80 times the rates charged on home mortgages and auto loans.
- Borrowers typically end up paying $800 dollars on a $300 loan.
- Payday loan stores open in areas with a higher rate of poverty.
- Annual percentage rates on payday loans in the U.S. range from a low of 196% in Minnesota to a high of 574% in both Mississippi and Wisconsin.
- The average payday loan has $520 in fees for borrowing $375 initially
- The average fee a payday lender charges is $55 per a two-week loan
- The average payday loan requires a payment of $430 from the next paycheck, equating to 36% of a borrower’s gross pay
- Nearly 80% of payday loans are taken out within two weeks of paying off a previous payday loan
- 75% of payday loans are taken out by those who have previously used a payday loan in the past year
If you find yourself in a cycle of debt that you can’t get out of, it is the time to schedule a consultation with an experienced bankruptcy lawyer. I am here to help you through the bankruptcy process and can help you create a new financial future. Contact my office today to schedule a consultation.