Depending on whom you ask you’ll get very different opinions about payday loans. A recent PEW research report on these short-term credit lines found that although 55% of borrowers believe payday loans take advantage of consumers, an astounding 62% say they’d take out another quick cash loan. Almost 12 million Americans rely on payday loans each year, with the average loan equating to $375. Unfortunately PEW found that only 14% of recipients can afford to repay their loan within the two-week lending period. The remaining 86% of borrowers opt to pay a $55 renewal fee to buy another two-weeks to repay the loan. On average, payday loans yield a 5-month cycle of debt costing consumers $520 in fees, on top of the $375 loan. So, with these high costs why do people opt to enter this prolonged cycle of debt? Convenience. Simply put, payday loans are largely used by low-income borrowers who have very few financial options. They’re generally living paycheck to paycheck, possess few assets, and routinely fall short each month. To learn more about payday loan challenges, I encourage you to read ‘Americans in love-hate relationship with payday loans’.
If you’re struggling with payday loans, please contact one of our counselors via our ‘Get Help’ page. Until next time, I’m Thom Fox with Cambridge Credit Counseling Corp.