The Payday Loan Treadmill

In recent years, many areas have seen a proliferation of title and payday loan stores.  These businesses typically make small short term loans to consumers who don’t think other options exist.  The stores are everywhere and the loans are easy to make.  Please be cautious, repayment of the loans can be very difficult and anything but short term.

Just this morning, I met with a nice retired older lady who had taken a payday loan from a well-known title loan company.  She borrowed $2200 in early 2009 and made monthly payments of $248 until December of 2012.  At that time, the lender “lowered” her interest rate and her payments dropped to $109 per month.  As of today, the balance on the loan had not decreased.  It is still the original $2200.  By my calculations she has paid in excess of $10,000 towards a $2200 loan.

In my experience, the story above is not unusual.  Desperate people start with just one payday loan that they are certain can be paid off the next month.  Next month comes and they struggle simply to make the interest payment and renew the loan for another month.   Often, they borrow from one payday lender to pay what is owed to another.  I call this the “The Payday Loan Treadmill”.  If only the interest is paid, the cash strapped consumer simply goes another month without making any progress in paying down the loans balance.  When another urgent need for cash develops, the consumer may go to another payday lender in order to have enough to pay the interest on the first and enough left over to address the current need.  By the next month, there are two interest payments to be made.  It is as if someone has turned up the speed on the treadmill.  The consumer is working harder and harder yet making no progress.  The anxiety caused by the ongoing debt cycle can be overwhelming.

From a collective perspective, there is clearly a need for legislation to curb the practices of short term high interest loan businesses.  That will be the topic of another blog post.  The purpose of this post is to encourage people to avoid high interest short term loans.  Seek other alternatives.  Once you get on the payday loan treadmill it may be difficult to get off.

If you do find yourself overwhelmed by this or any other type of debt, you should consult with an experienced and qualified professional before things get worse.  Options are available.  At Bond & Botes, we offer free consultations with an experienced attorney during which we will discuss all of your options.  If you need help getting off the treadmill please call one of our convenient locations to schedule a  free confidential consultation.