Payday Loan Debt
Payday loans are short-term loans that must be paid in full at the end of the loan term. The typical loan period is 14 days and borrowers are charged a fee of $10 - $30 for every $100 borrowed.
When approved for a payday loan, you are given cash in exchange for a post-dated check totaling the amount borrowed plus the fee.
For example, if you borrowed $500 and the fee is $20 for every $100 borrowed, you would write a check for two weeks into the future for $600 (the $500 borrowed + the $100 fee). If you don’t have the money in your account on the day the check is scheduled to be deposited, you have to renew the loan to keep your check from bouncing. So, you would pay $100 to get the loan extended for 2 more weeks.
To get out of one payday loan, sometimes an individual will use another loan. This creates a debt trap. It can be hard to get out of this.
If you find yourself renewing a loan week after week, try one of the following:
- Borrow from a family member or friend to pay off the loan. You will still owe the money, but will not have to pay the renewal fee every two weeks. Be sure to pay this loan back. Not paying back a loan from a family member or friend can cost you the relationship.
- Use your tax refund to pay off the loan.
- Explore an installment loan. While an installment loan is likely to cost you just as much as a lump sum payday loan, the smaller payments over many weeks or months may be more manageable.
If you can, avoid lump sum or installment payday loans going forward. They are extremely costly, difficult to pay off, don’t build your credit, and can create a lot of stress. Borrow from family or friends, find ways to earn more income, or find ways to cut back on spending so you don’t need a payday loan.