What are Payday Loans?
Payday loans are small loans you can use when you are temporarily out of money. Most often, payday loans are short term loans (two weeks or so) for a modest amount of money usually $50.00 to $500.00. To get a payday loan, you typically write a check for the amount you are borrowing – plus a fee. You might leave the check with the lender, and they cash it once you are ready to repay, however interest accrues daily until the loan is paid in full.
Costs of Payday Loans
In general, payday loans are extremely expensive. You end up paying an annual percentage rate that may be several hundred percent, compared to 6-11% on a mortgage or up to 35% on a credit card. For example, you might pay a $20 fee to borrow, plus daily interest, $100.00 for two weeks. The Consumer Federation of America has shown that you would pay about 426% APR on a payday loan. The problem is the people who can least afford to pay the astronomical interest rate are the ones taking out such loans. This is the main pitfall of a payday loan, since the fees are so high, the debt becomes almost impossible to ever pay off and the overall debt increases extremely quickly.
People consider taking out a payday loan if they need a small amount of money, they need the amount of money fast, on a fixed income, already have existing debt maxed out, lack of savings or are embarassed to go to a traditional lending institution. However, instead of putting yourself into deeper debt with an extremely high interest, the long term solution would be to get rid of existing debt.
In the event one files for a bankruptcy, they are able to restructure or discharge their debts and be able to save for their future, rather than paying the high cost of payday loans.
If there are any general questions or topics you would like to read about relating to bankruptcy law in the Philadelphia, Pennsylvania region, you may contact the Philadelphia Bankruptcy Lawyers at Sadek Law Offices, LLC at 215-545-0008 or (877) 4-LAW-411 or email brad@sadek-cooper-site. Thank you.