Sometimes, when it rains it pours. Sometimes, car repairs, family emergencies, and a new water heater all have to be paid for at the same time. Sometimes, you just need a little help to get to the next paycheck. And sometimes, when these things happens, people turn to payday loan companies for that little extra help.
While a payday loan may seem harmless if it is once in a while, the reality is payday loans can have a long lasting impact. For example, I know a man who took out a payday loan for $900 back in 2011. He was struggling financially, he had to pay his electric bill to avoid being shut off and he had no one that could help him. Getting the loan was simple enough. He was disappointed to see the interest rate at 348%, but it was a small loan and he figured he would be able to pay it back quickly. Except he wasn’t able to pay it back quickly, something else came up. Then, eventually, he forgot about it. Several months passed and life moved on.
He didn’t think about that loan again until 2014 when he was served a lawsuit. His small loan had grown to a debt of over $7000 with interest and other charges. The short term solution he had hoped for in 2011 had become a long term problem. He tried to work something out to repay the loan, but he couldn’t afford the monthly payments. A few weeks later, the payday loan took a judgment against him.
More time passed and the hectic pace of life pushed the payday loan to the back of his mind. He began a good job and his finances improved. They improved until that same payday loan showed up again. Another 1 1/2 years had passed and the new balance of the payday loan had grown to $12,900. What seemed like a necessary, short-term fix to his financial trouble had now become an out-of-control debt that threatened to garnish his wages and continued to grow faster than he could pay it off. A desperate moment 5 years ago had now put him on the verge of bankruptcy and jeopardized his financial freedom. All with a loan of $900 and an interest rate of 348%.
I tell this tale as caution to those who don’t understand what interest can do to a loan. While 348% interest is very high, I’ve seen payday loans charge an interest rate as high as 700%. Interest is a way for the lender to make money on the loan, but the borrower must understand how interest can affect loan payments and loan balances. The man in this tale has learned a hard lesson about interest and the long term affects it can have on his finances. I hope more people take the time to investigate how interest will impact their budget, especially when it comes to payday loans. If you need bankruptcy help because of a payday loan, contact us today.