When Payday Loans Outstay Their Welcome

You find yourself broke again. Your bills are piling up. Your rent/mortgage is due in a week. They are going to repossess your car if you don't come up with $300 in just two days. It doesn't matter what it is, we have all been there once, twice, or some even more times then we care to remember. What are you going to do? Then you remember the commercial you saw late last night: a payday advance is the answer, right? Maybe. Pay day advances are only a temporary solution and they come at a very high price.

Each year hundreds or even thousands of people are in a no win situation where they must rob Peter to pay Paul. Their bills are higher then their paychecks, their credit is out of control or nonexistent, and they are desperate. So desperate to hold on to what little they have that they, like sheep in a flock, are lead into a trap by the wolf. The wolf being the payday advance places which are popping up all over the place.

Are they really as bad as a wolf? No, not all the time. A payday advance is exactly that - an advance on your paycheck. You borrow money (a loan) from a lender (the payday advance establishment) and you must pay back said money within a certain time period, plus the interest charged on the money. It all sounds pretty straight forward. The catch in this little transaction is simple this: the interest rate can be extremely high (up to 300% or more), the time period is usually very short ( 5-14 days or less), and lastly you can get drawn into the ongoing loan cycle. Loan cycle? Yes. A cycle with no end.

A miser is hard to live with, but makes a fine ancestor.

Let us say that a man named John is behind on his car payment. John figures out his bills. He shops around for the best rates. He determines he can afford the high fees for the loan, and he decides to go get a payday advance. So he gets one for $300 and he writes a check for $375 to the payday advance establishment. Then he pays the car payment with the loan. Now his next check is short $375, but it is ok. He has taken everything into account. However, two days before payday his car dies. He has it towed to the garage and finds out that it is the battery which is faulty, so he buys a new one. But wait - now he is short for his rent. Will one more cash advance send John into a downward spiral? Maybe not, but then again it just might.

So let's be sure about this - payday loans can come to the rescue when money is scarce and there are pressing bills, but it's all to easy to trapped in a cycle of needing to take out a loan every month just to cover the interest paid on the last month's borrowing.