Living paycheck to paycheck means that an unexpected expense could make it difficult to pay rent, car payments or minimum credit card payments. And we all know that failing to pay these bills has serious consequences such as eviction, auto repossession and declined credit cards. That’s why this desperate situation causes many people to turn to payday loans for help.
Payday loans are short-term loans — typically for $500 or less — that are typically due to be paid back on the date of the borrowers next paycheck. In order to qualify for these loans, the borrower must provide the lender with a check for the full balance of the loan or access to his or her checking account so that the lender has the ability to garnish the loan amount when it is due.
The loans also come with a fee that is usually 10 to 30 percent of the amount borrowed. “Renewals” or “rollovers” are common with payday loans, and they allow the loans to be paid back at a later date after more interest and/or fees are charged. These options make it possible to owe hundreds of dollars in fees in addition to the original loan amount.
For these reasons and several others, consumer protection agencies warn the public to be weary of payday loans and to avoid them, if possible. Officials also keep a close watch on payday loan operators to make sure that they are not violating the law or the rights of consumers.
Check back later this week to read about a class action lawsuit that is pending against an online payday loan provider.