For someone who is really strapped for cash and who needs financial assistance immediately, the payday loan appears to be the answer. All it takes is a bank account and an income and within a matter of hours funds can be deposited in a personal bank account and one’s immediate financial problem is solved.
If it sounds TOO good to be true, it probably is. Nothing drives this point home any harder than realizing that the payday loan that one thought was going to help solve his or her financial woes was only a temporary “fix” and actually became a part of the problem and not the solutiion.
Payday loans are a trap waiting for someone to step into them. It is obvious that these loans are designed for those who have less than perfect credit. These loans are for those who have tried to borrow money from the bank and were refused. Most of these borrowers do not have any assets that they can readily convert to cash. For whatever reason, family members cannot or will not help out; perhaps the borrower is ashamed to ask for help or has been to the well one too many times. The bottoms line is that someone needs cash and needs it now; this person is deperate and is looking for immediate financial assistance.
Where can this person go for “help”?
In the good old days one may have gone to a pawn shop and hocked a watch or other like itme. The watch was held as collateral and the owner of the watch walks out with CASH. On payday, if he or she wants they simply return to the pawn shop and pay back the amount “borrowed” plus interest; interest that was legally charged up to a rate of 300%. If the watch owner preferred, he or she could choose not to return and pick up the watch and the pawn shop owner would sell it for an amount greater than what he paid for it. It was a win/win situation for the shop owner.
This was a quick fix, but was only viable if one had something of value to “pawn”. Our potential borrower has no readily available asset to use as collateral; now what?
Thank goodness for the computer and the Internet and the “virtual banks” they have helped to create, for we now have PAYDAY LOAN COMPANIES.
Payday Loan sites are everywhere. Applying for a loan is simple and very, very fast. No collateral is required in these transactiions. How is this possible?
Simple – one’s personal bank account is taken hostage and is held until the principal amount AND interest is paid in full. And even then, there is no guarantee that one’s account will be returned “unharmed”. What has happened is this; in the loan paper work that the borrower signed with his or her electronic signature he or she authorized the payday loan company to take money from a personal bank account on payday. The company will continue to take money from this account EVERY payday until the entire amount that was borrowed and the associated fees are paid.
So, here is someone who is obviously living payday to payday, has no savings or liquid assets, and the solution that this person has chosen to solve the financial dilema involves giving his or her paycheck (or a good portion of it) to a loan company, thereby reducing take home pay and necessitating obtaining another payday loan to get by until the next payday.
Not to worry, though, because the payday loan companies anticipated this and have made it so easy for one to “renew” the loan monthly. Of course, that means adding an additional fee each time the loan is renewed. And, good news, that loan can be renewed up to four times before the borrower has to begin paying off the principal. How convenient is that?
Payday loans vary in amounts form $100-$1500. The borrower is charged a dollar amount that is based upon the amount of money borrowed. These amounts most often translate to interest rates in excess of 400%. It is not uncommon for a loan of $500 to end up costing the borrower $3,000 in fees or interest.
It’s all legal, at least it is in most states.
Each payday the payday loan company will take money from one’s account. If one stops payment, the company may attempt to access the account under an assumed name. That is, the company may operate under several DBAs (Doing Business As) or under a corporate name. It is virtually impossible to free one’s bank account until the loan and fees are paid off in full.
Once paid in full, though, one’s account may not be safe. Many payday loan companies initiate a new loan agreement and email it to consumers who, for whatever reason, simply sign it electronically and return it and start the ordeal all over again.
The payday loan may seem like the solution to a financial problem. In reality, though, it is a TEMPORARY solution that usually creates an even larger financial problem.
If in need of immediate cash, seek it from a local bank, credit union, family, or friend. Swallow your pride; ask for real help. Don’t let a payday loan company take your bank account hostage. If you do, you may never have a true “payday” again.