About 12 million Americans rely on payday loans each year to manage income volatility or handle unexpected emergencies. However, while payday loans are used to solve a very real problem, consumers are frequently abused by predatory payday lenders. Because of limited regulation and lack of better options, it’s not uncommon to read horror stories about people charged in excess of 1000% APR or getting stuck in debt traps.
Once a person is stuck in a downward debt spiral with endless rollovers and hidden fees, they can quickly see their credit harmed and bank accounts emptied, especially if they take a loan from an especially unscrupulous lender. Payday loan tactics such as hidden fees, rollovers, and unreasonably high interest rates have caused 22 states in the USA to limit payday loans or ban them entirely.
Many people simply don’t have any other option. For someone affected by low wages, income volatility or an unexpected emergency, a payday loan might be the only option to bridge their income shortfall. While it may not solve a person's financial difficulties completely, it does provide a temporary solution.
Unfortunately, more than 80% of payday loans are ‘rolled over’ into a new loan or the borrower takes out another loan immediately after paying off their old one. If a lender doesn’t have policies in place to prevent rollovers and doesn’t offer any flexible repayment options, the financial disaster for most borrowers becomes an unavoidable reality.
infographic by: www.lendup.com