The Payday Loan Problem
Most often the borrower gives the lender their checking account information to deposit the funds on the loan date of origin and to retrieve the payment on the next payday. If a borrower cannot pay back the entire loan on the next payday, the borrower will renew the loan, by paying a fee which is not credited again the principle amount owed. Here is an example to better explain the process:
Joe borrows $1000, but at the next payday he cannot afford to pay the entire amount back. The payday lender collects $150. Two weeks later the lender collects another $150. At the end of the day Joe has simply, “renewed” his loan twice and still has not paid any of the $1000 principle.
Payday Loan Abuse
Payday loans are a useful and necessary financial tool that can give you the quick cash you need in an emergency. Whatever, the reason, a short-term loan gives you access to funds quickly, and with very little credit checking, quick applications and efficient approvals. In most cases, the cash is deposited into your account or a check is received almost immediately.
The problem arises when people misuse the payday loan and end up buried in payday loan debt, often with more than one payday loan to payoff because of the payday loan cycle.