Explore the pitfalls of payday loans
Every consumer should be aware of some truths before taking out a payday loan.
The Consumer Fraud Task Force, a coalition of local, state and federal government agencies and nonprofit business and consumer groups in Missouri and Illinois, including the Better Business Bureau, have issued a report warning consumers of the pitfalls of payday loans. Specifically, the Task Force reports that “payday loans can trap borrowers in a revolving door of debt that can be difficult to escape.”
The reason for this, according to the Task Force, is that payday loan repayments often leave borrowers unable to pay their other bills, thus forcing the consumer to take out additional payday loans. In fact, the nonprofit Center for Responsible Lending reported that payday loan borrowers often take out multiple payday loans per year, paying a new borrowing fee each time along with the high interest rates associated with this type of lending.
According to the Task Force, potential borrowers should exercise extreme caution when considering a payday loan whether it be from a storefront office or an on-line site. Additionally, the Task Force warned borrowers that if they stopped payment on a payday loan check or closed their account prior to their check being cashed, they could be subject to criminal prosecution.
Finally, the Task Force offered the following tips for consumers considering taking out a payday loan:
- Before taking out a payday loan, check with your bank or credit union and see if they offer and you qualify for a short-term loan from them.
- If you have a credit card use it instead of taking out a payday loan. While using a credit card can be an expensive way to borrow money, it can be considerably less costly than a payday loan.
- If you’re considering a payday loan for the purpose of paying a bill, contact your creditor first and see if you can make arrangements to pay the bill later.
- Read and be sure you understand the loan agreement before signing it. Pay particular attention to the due date of the loan, what your payment will be and how it will be collected.
Before taking out a payday loan, consider these findings and their implications.