‘Tis the season for holiday shopping, seasonal spending, and, for some, a reliance on payday lenders to take care of both. In fact, with more Americans stuck at the lower end of the income spectrum due to the economic recession’s trademark job losses, lingering unemployment or other reductions in salary, many are forced to rely regularly on consumer credit to pay for their everyday bills, goods and services. As a result, payday lending has become a fast-growing financial industry throughout the recession, providing these types of lenders with new, low risk opportunities at the [literal] expense of unwary borrowers who will avoid defaulting on this type debt at all costs—just so they can keep this credit in the an uncertain economic environment. But, borrowers beware. As payday lenders thrive, people falling prey to the endless payday lending cycle are struggling to simply keep up…and for a variety of simple reasons.
Going for Payday Loans Means Going for Broke
Most experts agree, even in a financial meltdown, the fastest way to go broke is through payday loans. Now, if you’re like many Americans, you may be facing the economic crisis head-on, and whether that looks like a missed mortgage payment or hovering health care costs, a payday loan might seem like an easy way to weather the storm. But the opposite is true and the reason is simple: exorbitant interest. With interest rates equaling as much as 400%, payday loans are a recipe for disaster, leaving desperate borrowers unable to repay.
To illustrate, let’s imagine you’ve borrowed $800 from a payday lender in order to pay this month’s mortgage payment as scheduled. A payday lender might then charge you $140 for this $800 loan, due on your subsequent payday. As a result, you now owe $940 (the interest plus the principal) to be paid back in a matter of weeks. If you only pay the interest on this initial loan, as most low income people just trying to keep their heads above the financial tide normally do, over the course of three months, you then owe your payday lender $420—in interest alone.
Pay Day Loans Make You a Slave to the Payday System
Payday lenders are smart. They want you coming back each and every month and therefore prey particularly on less affluent borrowers who can’t or won’t pay off their debts over the short term. As mentioned, not paying off your loans in full means paying excessive interest for a longer period; and shelling out hundreds in interest over a short period doesn’t leave much room for savings to pay your principal (plus whatever interest has accrued) and break from the payday cycle. No savings, living paycheck to paycheck, with massive interest payments to boot, leads many borrowers down a road to financial ruin.
Payday Loans Can Pave the Way to Bankruptcy
In fact, payday loans can lead directly to bankruptcy. Like any creditors swarming their unpaid debt, delinquent payday loans lead to harassment from payday lenders. Borrowers who use payday loans are particularly susceptible to these types of actions when they find themselves unable to repay. Luckily, North Carolina has outlawed storefront payday lenders. However, internet payday lending continues to be a persistent problem, with some North Carolinians having multiple internet accounts, each directly drafting from the consumer's checking account.
If you’ve already fallen victim to a payday lending scheme, an experienced bankruptcy attorney can end your cycle of endless spending. To get the big picture on how bankruptcy works and how the laws in North Carolina can help you, speak with an attorney at the The Law Offices of John T. Orcutt.