What is a Payday Loan?
A payday loan, or payday advance, is designed to be a small, short-term loan that covers immediate expenses until your next paycheck. Although lenders would have you believe these loans come from the bottom of altruistic, noble hearts, the terms of the prearranged lines of credit show differently. Payday lenders take advantage of consumers, and not only consumers at large, but those consumers who are in the bleakest of financial circumstances. Whether it is out of malice or mere self-interest, payday lenders offer loans that are unethical and should be avoided at all costs.
What's Predatory Lending?
Payday advance contracts are often presented in misleading and deceitful terms. Because payday advances are generally for such small amounts, the accompanying fees demanded by payday lenders do not always appear to be expensive in terms of dollars. However, reading through the terms of typical loan contracts reveals unthinkable annual percentage rates APR. And becausepayday loansare usually extended for only a matter of a few weeks, the already high APR makes for an astronomical effective annual rate of interest EAR. The real terms of most payday contracts are, in fact, predatory and acts of usury.
Under a guise of "helping those in need," payday lenders offer loans regardless of patrons' credit, thereby effectively preying on those who are most susceptible to such unjust practices. Payday loans encourage customers to spend money that they do not yet have, and consequently, will not have in the future. By spending tomorrow's money on today, payday loan customers fall into a cyclical trap of being further in debt and further in need. Their personal finance circumstances will likely, and sadly, only get worse.
Won't the Law Protect My Personal Finances?
Payday lending--in the United States--is mostly regulated on the state level. Current laws eliminate the most extreme forms of predatory payday lending, but the legislation is far from perfect. There is a great need for consumers to recognize what payday lending is truthfully about: charging customers excessive rates of interest while encouraging financially unsound principles.
But If I Need Money, What Should I Do?
If you are currently caught in such a trap, don't give up hope. There is a way out and a way up. Requesting salary advancements, working with creditors to adjust current payments, and borrowing from friends and families are just a few ways to successfully avoid being swindled by payday lenders when faced with extreme personal circumstances. For more long-term solutions, review personal earning and spending habits, participate in financial counseling programs, and take back control of your personal finances and your life.
Remember, payday loans cannot solve long-term problems, but they certainly can create them.
