Payday Loans: Not a Sustainable Solution to Financial Problems
For millions of Americans struggling over the past several years due to a sluggish economy and job market, payday loans have become a last-resort option to get money quickly. Although payday loans are easy to obtain and do not require a credit check, making them one of the few viable options for low-income families, they can be dangerous.
A payday loan, also known as a cash advance, is a short-term loan that is typically due on your next payday. These loans are usually for $500 or less. Most lenders only require an active checking account, proof of income from a job and a valid ID. Failure to repay the loan may result in the lender threatening to take legal action.
Although payday loans generally do not negatively affect credit, they often carry a higher price tag in the long run. Because of how easy it is to obtain a payday loan, these companies tend to target low-income neighborhoods. Payday loans have a high interest rate of 15 to 30 percent, a rate that causes people to go further into debt. A large portion of the individuals who take out these loans are unable to pay them back on time, resulting in additional charges for bounced checks or having to extend the loan and incurring more fees.
Being unable to repay these loans can lead to a vicious cycle. The first loan cannot be paid off in time, so borrowers extend the loan and incur a fee. The loan and fee may be paid off the next payday, but when money is needed again, they return for a second payday loan. There is no limit on the amount of payday loans that can be taken out, so families easily become dependent on this additional source of funds.
If you find yourself stuck in a cycle of being unable to pay off a cash advance, consult a knowledgeable and experienced Los Angeles bankruptcy attorney for the guidance you need.