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Beware of payday and other dangerous loans

Payday lenders have proliferated in Petersburg and the Tri-Cities region. They were made legal under Virginia law not long ago. They are therefore legal, but not right. They are very dangerous to your financial health and well-being. The quick fix you might get from a loan from one of them is simply not worth the very high price you will pay for that loan.

Also known by the euphemism, “deferred deposit service,” payday loans are extremely short-term loans, literally a few days to a couple of weeks. They range in size from a few dollars to $1,000. You can find payday lenders in strip shopping centers, check-cashing services, and even pawnshops. They are usually clustered in and near struggling neighborhoods whose lower-income and minority residents are their prime targets. And these same customers are the ones who can least afford to get involved with a payday loan.

Here’s how a payday loan works: Let’s say you need $100.You go into the lender’s store and write a check dated for next week for the amount of money you desire, plus interest. The interest on a $100 loan might be $15 – the fee is frequently much higher -- if you agree to pay it back in 7 days. If you can’t repay the loan in the required time, the lender will charge you another $15 fee for another 7 days. You now must pay $30 to borrow $100. That is approximately 730% interest!

A payday lender might also require you to pay an additional service or processing fee of as much as $25, making the cost of the $100 loan even higher.

When the loan is due, the lender submits your postdated check to your bank for payment in full. If you do not have the necessary amount in the bank, your check will bounce, incurring a fee from your bank, typically, $35, and a fee from the payday lender, typically $35-$50. If you tell the lender not to submit your check to your bank on payday, the lender will extend the loan and charge you additional interest. You have now paid more than you borrowed.

So a $100 loan could cost you over $200 if you do not repay it promptly. It is easy to see how quickly you can get buried in debt using a payday lender. Also, if you do not repay the loan, payday lenders generally don’t hesitate to take you to court for a judgment requiring you to pay, or they will get a court order to garnish your wages. Some payday lenders use professional collectors to get their money back – and they play rough.

So if you think your problems can be solved by getting a payday loan, go ahead and get one. That spells Trouble – with a capital T – for you.

Payday lenders are illegal in many states. It is easy to see why, because their interest rates are outrageous. There was and continues to be much debate in Virginia’s General Assembly about payday loans. Unfortunately, the payday lending industry has generous contributions to many legislators, so meaningful changes are unlikely to happen.

Source : http://www.progress-index.com/