Dangers of payday loans
28 Dec, 2007
A cash advance on a future paycheck may seem like a solution to a short-term financial crisis. But odds are that cash advance or payday loan will come at an extremely high price - and trap the borrower in a cycle of long-term debt.
That's the consensus of government regulators and consumer advocates nationwide, who characterize the high-interest, short-term loans as debt traps for unsuspecting consumers.
Consider this: The typical charge for a payday loan is $15 to $20 every two weeks for each $100 advanced.
For two-week loans, those rates translate to annual percentage rates of 390% to 780%, the Consumer Federation of America reports.
But debt-strapped consumers don't necessarily do the math before they obtain those payday loans. They're likely to be more concerned with their debts than the cost of the cash they're getting to pay them - until they find themselves paying interest week after week in an unsuccessful attempt to pay off the loan.
That's what happened to a Queens woman who stumbled onto an offer from a payday loan provider when she clicked a pop-up ad online. "The offer explained you could get up to $1,500 in your bank account overnight. Since I'm usually short of cash, I was very interested," she explained.
She borrowed $200 from the Internet-based payday lender two months ago. Since then, she's made four $60 payments - and still owes $200. "Is this legal? Are these companies allowed to operate this way?" she asked.
No. Payday loans are illegal in New York State. Regardless of where the Internet lender is located, it's subject to the credit regulations in the state where the loan is issued.
Source : http://www.nydailynews.com
|
