What?s Worse: Long-Term or Short-Term Debt?
Last Updated on Tuesday, 11 December 2012 12:17 Written by Ebiz Tuesday, 11 December 2012 12:17
Payday loans are marketed as short term loans, cash advances or instant cash. These loans are meant to bridge the between one paycheck and the next. In reality, if the borrower takes out one payday loan, he or she will most likely take out another, many borrowers take out a least nine payday loans a year with interest rates of over 400%.
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Actually, no state has authorized this high cost loan. As a matter of fact, six states, (Arkansas, Arizona, New Hampshire, Ohio and Oregon) including the District of Columbia has tried to regulate the payday lender or stop them altogether.
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Most states have no regulations, protections or restrictions, and the consumers financial problems continue to worsen, as a result of using these payday loans.? These short term loans have a two week turn around and an annual compounded interest of 400%. A cycle of debt occurs and daily necessities like groceries and child care are neglected.
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Most people are financially stressed today. To make ends meet is a challenge to the regular worker or the retiree. Many have no savings and it appears that the cost of daily life is more than they can handle successfully. When there is an unexpected emergency, many consumers look to a payday loan for the few hundred dollars that they need. Also, many of these cash strapped people have no credit or poor credit and are unable to secure a traditional loan from a bank or a credit union. The payday loan is quick and easy, but the three digit interest rate only increases the financial woes of the consumer do not improve them.
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Who are payday loan lenders really reaching out to?
Many payday lender storefronts are located in low income neighborhoods and obtain millions in profit from the poverty stricken, needy and cash strapped consumers who live close by. This loan is designed to trap the borrower into roll over after rollover, due to the short duration of the loan and the high interest rate that they cannot afford to repay in the two week time. The borrower does not have enough money left over from his next paycheck to pay off the loan. The initial balance of the loan is left untouched and more interest is compounded and added to the total. ?In this way, the payday lender is able to take millions of dollars from the poor every year.
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The states have tried to regulate payday lenders by capping interest at 36% and fees at $30 per $100 borrowed. The borrower still traps him or herself by repeat borrowing or by taking out another payday loan to pay off the first payday loan. These? poor? consumers are uneducated about credit and credit management and do not read or understand the consequences of the risky loan that they are signing up for. Educating the consumer about the costs and risks of these loans, would help to elevate some of the problems connected with these loans. If the consumer were able to understand ?the costs, he or she would know exactly how much would be needed for the repayment. The consumer needs to know how much he or she can afford to spend for this instant cash and is this loan cost in their budget. The responsibility of the debt rests on the borrowers shoulders.
This entry was posted on Tuesday, December 11th, 2012 at 12:17 pm and is filed under Debt. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.
Source: http://blog.ebusinessdebtrelief.com/debt/whats-worse-long-term-or-short-term-debt
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