Payday Lenders Consumers

Outrageous Facts That Show How Payday Lenders Screw Consumers

The payday loan industry is coming under increased scrutiny for allegedly preying on low-income borrowers and trapping them in a cycle of debt by charging exorbitant fees. This has led to increased scrutiny of the payday loan industry.

According to a report published by a nonprofit organisation that focuses on public policy, Pew Charitable Trusts, the loans make it possible for consumers to obtain a modest sum of cash in a short amount of time. This sum is typically around $375 for borrowers in the United States.

Those who are in favour of the loans argue that they should be made available to cash-strapped households that occasionally require an additional several hundred dollars to assist with the payment of expenses such as those for groceries or power.

And it’s simple to get approved for one: to acquire a payday loan, all you need is a driver’s licence, a Social Security card, proof that you have income, and the number to a bank account in your name.

According to a new report published by the nonprofit think tank Milken Institute, many borrowers are unable to pay back the loans on time because the fees charged by the lenders are so high; in some states, these fees can reach as high as 574%. As a result, these borrowers end up taking out a second loan to pay the interest, which further entangles them in a cycle of debt that can be very damaging.

The following is a compilation of some of the most disturbing information regarding the payday loan industry that was found in a report by the Milken Institute:

  • Payday loans account for about half of the total annual borrowing total in the United States, which is approximately 12 million people.
  • The interest rates that are associated with payday loans can be up to 35 times higher than the interest rates that are associated with credit card loans, and they can be up to 80 times higher than the interest rates that are associated with home mortgages and vehicle loans.
  • The majority of borrowers have outstanding debt with payday lenders for five months out of the year, and as a result, they wind up paying back an average of $800 on a $300 loan.
  • The estimated annual percentage rate for payday loans in the United States ranges from a low of 196% in Minnesota to a high of 574% in both Mississippi and Wisconsin. The lowest rate is found in Minnesota, and the highest rate is found in both Mississippi and Wisconsin.
  • Borrowers in California who take out six or more payday loans per year account for more than half of the state’s total payday loan revenues, and they wind up spending at least $525 in fees for a $255 loan.
  • The concentration of payday lending businesses is typically observed in regions with higher poverty rates. The six California counties that have the highest number of payday lender stores per 100,000 individuals have an average per capita income that ranges from $17,986 to $26,300, which is significantly lower than the average per capita income for the state, which is $44,980. When compared to the average unemployment rate of 11.8% for the state, those counties have an average unemployment rate of approximately 15.8%, and the percentage of persons living in poverty is 20%, which is higher than the national average of 15%.

The Ethical and Religious Liberty Commission (ERLC) is one of the faith organisations that participated in the formation of the Faith for Just Lending Coalition earlier this month. The goal of the coalition is to raise awareness about families who are now experiencing financial hardship and the harmful impact that high-cost lending has on them. Payday lending is an industry that is notorious for taking advantage of those who are financially strapped, including those who are destitute. The following are five facts concerning payday lending that you should be aware of:

  1. The term “payday lending,” which is also known as “payday loans,” is used to describe the practice of lending people small sums of money, typically $350 or less, for periods of two weeks, which is the same as saying “until their next payday.” 2. In exchange for the loan, the borrower is responsible for paying the interest on the loan when the payment is due at the conclusion of the loan period.
  2. Since these are short-term loans, the borrowers aren’t always aware of the actual interest rates that they are paying because the loans are so short-term. For instance, when a lender advertises a two-week loan for $350 at an interest rate of 15%, the borrower is essentially agreeing to pay a yearly interest rate of 390%.
  3. If a typical payday loan of $325 is rolled over eight times, the borrower will owe $468 in interest; the borrower will need to pay $793 to fully repay the loan and principal amount. The rollover of existing borrowers’ loans every two weeks accounts for three-quarters of all payday loan volume, with the typical payday borrower remaining in debt for 212 days out of the year due to their payday loan debt.
  4. A person who uses payday loans makes nine different transactions in a single calendar year on average. Over sixty percent of the payday lending industry’s revenue comes from borrowers who take out five or more loans annually, while the remaining ninety percent of the industry’s revenue comes from borrowers who take out twelve or more loans annually. Only two percent of the volume of payday loans is comprised of loans made to borrowers who do not repeat the process.
  5. Since its inception in the 1990s, the industry of payday lending has established more than 22,000 locations, which together generate an estimated annual loan volume of $27 billion. At the national level, there are more than two payday loan stores for every site of Starbucks.

Few Additional Facts About Payday Loans

  1. The typical borrower of a payday loan takes out 8 loans each and every year.

More than twelve million people in the United States take out payday loans each year, with the typical borrower taking out eight loans over the course of the year. There is a very real risk of falling into the trap of payday loans. According to the findings of this study conducted by the Pew Charitable Trust, these borrowers are shelling out a total of $520 in interest payments on an average loan amount of $375.

Borrowers who take out payday loans will, on average, wind up paying back more in fees and interest than the original amount they took out in loans. It’s a never-ending circle… A vicious cycle that ultimately results in the borrower owing more money in interest and fees than the principal amount of the loan. A payday loan in the amount of $350 is frequently taken out by people so that they may get by with their variable monthly living expenditures in the time between paychecks. On the other hand, because the APR is so sky high and the fees keep piling up, the typical borrower winds up paying more in fees than the actual value of the loan they obtained. Therefore, for a loan of $350, the typical borrower would spend more than $350 in fees and other associated charges.

  • Payday loans typically come with an annual percentage rate (APR) of 400% or greater on average.

According to a study conducted by the Consumer Federation of America (CFA), the average annual percentage rate (APR) for loans is greater than 400%. The typical length of a loan is two weeks, and the annual percentage rate (APR) for finance costs on a two-week loan can range anywhere from 390% to 780%. It’s possible for loans with a shorter term to have even greater interest rates.

  • People who have used payday loans are more likely to declare bankruptcy than those who have not used payday loans.

When payday loan users were compared to similar low to moderate income households in Detroit who did not use payday loans, the Detroit Area Study (DAS) found almost three times the rate of bankruptcy in payday loan users, double the rate of evictions and phone cutoffs, and almost three times the rate of having utilities shut off. These findings are according to the findings of the Detroit Area Study (DAS). When compared to payday loan applicants who were denied for a payday loan, borrowers who were approved for a payday loan were found to have a risk of declaring bankruptcy that was two times higher than the risk faced by payday loan applicants who were denied for a payday loan. This research was conducted in Texas.

  • Eighty percent of all payday loans end up being refinanced in some way.

Within the first two weeks after being issued, the majority of payday loans are either refinanced or extended (keep in mind the typical twoweek loan term). And it shouldn’t come as a surprise that the same report by the Consumer Financial Protection Bureau (CFPB) discovered that the majority of payday loans are given to borrowers who renew their loans such a large number of times that they end up paying more in fee expenses than the total amount of money that they initially borrowed. This was found in the report’s findings regarding the majority of payday loans. Only 15% of people who borrow money pay off all of their payday loans within the allotted time frame of 14 days without taking out further loans.

  • As a result of the Military Lending Act, the annual percentage rate (APR)

That can be charged on loans to military service personnel and their families is capped at 36%. (2006). According to a report published by the Department of Defense (DOD) in 2006, approximately 17% of active-duty military personnel use payday loans. The DOD also stated that “predatory lending undermines military readiness, harms the morale of troops and their families, and adds to the cost of fielding an all volunteer fighting force.” According to this report by The Center for Responsible Lending, the Military Lending Act (2006) placed a cap on annual interest rates of 36%, which included all fees and charges. Additionally, the act prohibits the lender from securing the loan with a personal check, debit authorization, wage allotment, or vehicle title. Finally, the act required both written and oral disclosure of all interest rates and payment obligations prior to the issuance of the loan.

  • The typical amount for a payday loan is between $350 and $500.

The typical amount of a payday loan is lower than what was anticipated. The average amount of a loan is $392, while the median loan amount is $350.00. A significant number of jurisdictions have even set the maximum amount that can be borrowed as the principal at $500. However, the real money that traps consumers in the vicious cycle of payday loans comes from the set fees and high interest rates that are associated with these loans.

  • Despite the fact that the standard payback period for a payday loan is two weeks, the majority of borrowers take longer than the average of 175 days to repay their debts.

Have we talked about the pitfalls of payday loans? Payday loans come with exorbitantly high interest rates and costs, which traps borrowers in a never-ending cycle from which they are unable to escape. Many people end up renewing or rolling over their debt, so continuing to accumulate interest and fees, and plunging deeper and further into this deep, black pit that robs you of your financial security.

Payday loans with extremely high interest rates are legal in 32 out of the 50 states in the United States. This indicates that loans with interest rates in the triple digits and no rate cap are permitted on the basis of the borrower’s own bank account and cheques issued by the borrower themselves. The other 18 states and the District of Columbia, on the other hand, have laws that prohibit payday loans with excessively high interest rates and cap APRs.

  • There are more payday loan businesses than there are McDonald’s restaurants in the United States.

It seems like there’s a McDonald’s on every other corner these days. However, as of November 2014, NBC News reported that there were more payday lenders in the United States than there were McDonald’s restaurants. The number of McDonald’s restaurants was 14,267, while the number of payday loan companies was above 20,000. The problem of extremely high interest rates and predatory lending is made worse by the fact that it is so simple to get a payday loan.

Get in touch with us right away if you find yourself stuck in the never-ending cycle of payday loans and are having trouble finding a way out.

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