What Is The Talk About Payday Loans on Election Day?
November 4, 2008
Yesterday we covered fake debt collection. People who took out past payday loans were targeted for identity theft by scammers. The Wall Street Journal reported on payday lenders backing Election Day ballot initiatives challenging state restrictions on payday loans.
Payday loans are short term loans secured by a person’s income. The lender verifies the borrower’s income to determine a loan amount. Direct deposit paychecks are verified by a bank statement. A postdated check from the borrower acts as security for the loan. The loan is repaid on the borrower’s next payday.
Typically interest charged on payday loans is $15 to $20 per $100 borrowed. Loans are paid back within one to four weeks. If the borrower needs an extension, similar interest rates are charged. Due to the high interest rates, payday loans are now illegal in 15 states.
Payday lenders spent about $30 million on Ohio and Arizona ballot initiatives. Payday lenders promise financial freedom, which states find misleading. Payday loans are costly and even more expensive when borrowers can’t repay them. Excessive interest accrues and borrowers face possible collection abuse.
If you took out a payday loan in the past, verify your debts. Order reports from the three major credit reporting agencies to review your credit history. Don’t talk to misleading debt collectors who will not provide identification. Instead, discuss your situation with a professional to find out your options.
A payday loan is only useful in a short term crisis. If you have an emergency car repair and need to get to work, a payday loan may help. Payday loans are not a longterm solution. Often a vicious cycle begins causing you to get deeper in debt.
Another alternative is to workout a deal with creditors. Ask for an extension until your next payday rather than taking a payday loan. Remember only the lenders achieve financial freedom with payday loans.
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