Obtaining a payday loan is a simple process. All you need is identification, a steady income and a bank account in good standing. In the state of Louisiana, the maximum loan amount is $350, and the loan term is 60 days or fewer. However, the transaction is usually for a short-term, two-week cash loan. The borrower will write a personal check for the amount to be borrowed, plus the finance charge. The lender holds the check until the borrower’s next payday. The borrower may opt to redeem the check by paying off the loan, allowing the lender to deposit the check or paying the finance charge only so as to roll the loan over. Payday loans are big business-more than 20,000 lenders are available in the U.S. If you think you might need one of these loans, here are six little-known facts to consider.
1. Paying more in fees
Because of fees and the enormously high APR, the average borrower ends up paying more in fees than the loan amount. In Louisiana, for example, the APR for a loan of $100 is a whopping 780 percent.
2. Eight loans a year
On average, a borrower takes out eight loans a year. The Pew Charitable Trust conducted a survey that revealed on an average loan of $350, a borrower pays $520 in interest.
3. The popularity of rollovers
A report by the Consumer Financial Protection Bureau shows that about four out of five payday loans are either renewed or rolled over. Only 15 percent of borrowers repay their debt within the 14-day period without taking out another loan.
4. The cap on loans made to the military
The Military Lending Act of 2006 put a cap of 36 percent on the annual interest rate of payday loans for military personnel, including all charges and fees. The act requires that both written and oral disclosure of interest rates and payment requirements be made before a loan is issued.
5. When borrowers actually pay off their loans
Despite the usual two-week repayment agreement, many borrowers either renew or roll their loans over for an average of 175 days during which fees and interest continue to mount.
6. Borrowers and bankruptcy
According to the results of studies done in Michigan and Texas, people who took payday loans were more likely to file bankruptcy than those with low to moderate income who did not use this kind of loan or who were turned down by lenders.
If you have already taken out a payday loan, you may have renewed or rolled your loan over, thus discovering for yourself what a vicious cycle it can generate. If you want to get out of this cycle and see your financial life returned to a healthy state, you can turn to an experienced attorney who will assist you in getting away from the payday loan jungle.