The week before payday is often the worst. You are out of cash, maxed out on your credit cards and you need just enough money to tide you over until your next paycheck comes. It can be a desperate feeling that often causes people to make desperate choices.
Taking a payday loan is one of those desperate choices. They have the benefit of offering fast cash with no credit check, so they may seem better than a traditional loan. However, if you are already in financial straits, a payday loan may only add to your troubles.
How does it work?
Advertised as an advance on your next paycheck, payday loans are loans. Make no mistake about that. They carry interest and fees like any other loan but often at much higher rates, typically around 400%. The only reason they are called payday loans is because your paycheck is the collateral for the loan. Here is how a typical payday loan works:
- You request a certain amount of money. In Wisconsin, there is no limit to the amount you can get from a payday loan.
- You present the lender with a pay stub to prove you have an income.
- You provide the lender with your bank account information so he or she can deposit the loan amount into your account.
- In some cases, you may instead write a post-dated check for the loan amount plus interest and fees.
- Your due date for repaying the loan is the day you get your next paycheck.
- On the due date, your lender will either cash your post-dated check or withdraw the money from your bank account as you agreed.
It sounds very simple unless payday arrives and you are still unable to meet your financial obligations. The amount you owe the lender may take a serious dent out of your next check, and you may find yourself in the same position, needing money to tide you over. Worse that that, you may not have the money to repay the lender, in which case you will have to extend the loan. This means additional fees and interest and the start of a cycle that is difficult to escape.
What are your options?
Are you already in this situation? Do you have overwhelming debt that includes payday loans? Are payday lenders threatening you with lawsuits or criminal prosecution? There may be a way out from under the burden of debt.
If you are in a situation where your debts consume your paycheck each week, you may find it impossible to budget your money so you can avoid payday loans and other types of financing that prey on your desperation. Instead, you may wish to explore the option of seeking debt relief through bankruptcy. Speaking with an experienced attorney may provide you with information you need to make an informed decision about your alternatives.