Payday loans put borrowers on debt treadmill

(4/11/2011) - Payday loan case studies reveal while the loans are advertised as quick and easy, many borrowers remained indebted for up to two years after their first loan.

The Center For Responsible Lending's (CRL) latest treatise on the payday loan industry "Payday Loans, Inc. Short on Credit, Long on Debt" tracked the transactions of 11,000 borrowers in Oklahoma found that, among 12 million Americans trapped in the payday loan cycle, struggling with interest as high as 400 percent, few are short term borrowers.

Very few new borrowers begin borrowing from a payday lender at any given point, but those who do are likely to continue for long stretches of time.

Repeated borrowing is a result of the structure of the payday loan product -- you must pay the entire amount due with a single paycheck.

CRL says that requirement virtually ensures that the already strapped borrower will not have enough money left over to get through the rest of their pay period.

Borrowers who find themselves short of cash soon after paying one loan back, must take out another to meet their ongoing financial obligations.

The report found:

• The Federal Deposit Insurance Corporation (FDIC) has ruled that it is inappropriate for payday borrowers to remain indebted for more than 90 days in any 12 month period, but CRL found that borrowers are indebted for more than twice that limit. For example, in their first year of payday loan use, borrowers were indebted an average of 212 days. Over the full two-year period, borrowers are indebted a total of 372 days on average -- more than a calendar year.

• Payday borrowers' loans balloon in size and become more frequent. Payday borrowers who take out loans over a two year period have 12 payday transactions in their second year of borrowing, up from 9 transactions in the first year. Borrowers' initial loans averaged under $300, but the average borrower in the study owes $466 on payday loans.

• Many borrowers become late or default on their payday loan, triggering more fees and putting their bank account at risk. Over the first two years of payday loan use, 44 percent of borrowers will experience a "return event" or default in which they are unable to pay their payday loan on time. Defaults trigger bounced check and associated fees.

"While the industry contends that the vast majority of its borrowers use the product responsibly -- defined as using these loans only on an occasional basis for an unexpected financial emergency -- our findings show otherwise," the report says.

Refinance at Today's Low Rates!


Other related articles:

Celebrate 'Financial Literacy Month'… frugally

Bankruptcy counseling helps cure debt addiction

Beware payday loan 'alternatives'

Tips to Manage Debt While Unemployed




Fannie Mae & Jumbo Mortgage Rates

Just One Click! = Current Rate Chart

Pennsylvania Mortgage Rates Current Mortgage Rates - Hawaii Current Mortgage Rates - Alaska West Virginia Mortgage Rates Virginia Mortgage Rates District of Columbia Mortgage Rates Maryland Mortgage Rates Delaware Mortgage Rates New Jersey Mortgage Rates Connecticut Mortgage Rates Rhode Island Mortgage Rates Massachusetts Mortgage Rates New Hampshire Mortgage Rates Vermont Mortgage Rates New Hampshire Mortgage Rates Maine Current Mortgage Rates Vermont Mortgage Rates Current Mortgage Rates - New York Current Mortgage Rates - Michigan Current Interest Rates - Wisconsin Current Mortgage Rates - MINNESOTA Ohio Mortgage Rates Current Mortgage Rates - Kentucky Current Mortgage Rates - Indiana Illinois - Current Mortgage Rates Current Mortgage Rates - Iowa Missouri Mortgage Rates Current Mortgage Rates - North Carolina South Carolina Mortgage Rates Current Mortgage Rates - Florida Current Mortgage Rates - Georgia Current Mortgage Rates - Tennessee Current Mortgage Rates - Alabama Current Mortgage Rates - Mississippi Current Mortgage Rates - Louisiana Current Mortgage Rates - Arkansas Current Mortgage Rates - Oklahoma Current Mortgage Rates - TEXAS Current Mortgage Rates - New Mexico Current Mortgage Rates - Arizona Current Mortgage Rates - Kansas Current Mortgage Rates - Nebraska Current Mortgage Rates - Colorado Current Mortgage Rates - Wyoming South Dakota Mortgage Rates Current Mortgage Rates - North Dakota Current Rates - Montana Idaho Current Rates Washington Mortgage Rates Current Mortgage Rates - Oregon Current Mortgage Rates - Utah Current Mortgage Rates - Nevada Current Mortgage Rates - California

Start by selecting your state

Get the Updated and Improved Mortgage Rates App from

iPad for Mortgage Rates

Refinancing: Getting Started

Refinancing Info and Advice

Refinancing: Selecting a Loan

FREE Mortgage Rate Widgets
Your State's Rates or National Rates
Get this Widget for any State you want