Bankruptcy and Payday Loans

Payday loans can be a fast track to financial trouble. This type of loan has the highest interest rates and is targeted at those struggling from paycheck to paycheck. Not surprisingly, the places where you find most payday loan companies are in poorer areas of town and in areas with high populations of financially struggling minorities. Low-income households, single-parent families, military families, and minorities are targeted and are at risk for falling into the payday loan trap. Learn about alternatives to this thinly disguised loan sharking arrangement and protect your finances and future.

 

People must usually struggle to get out of payday loans. A payday loan is a short-term loan meant to help one out temporarily until his or her next paycheck. Usually unexpected expenses cause a person to seek a payday loan. Those who use payday loans do so because they do not have savings or credit cards to cover emergencies or because they have maxed out their credit.

 

The initial fees, interest fees, and late fees connected to the loan are what usually cause major problems. If people need help to make it to their next paycheck, it is often because they are living beyond their means, and they will not be able to pay back the full amount without causing themselves undue hardship. This means renewing the loan for a longer period of time and paying the interest fee again. With this, a cycle that is hard to break has begun. It is common for an individual to pay more than double the initial value while repaying a loan that was only several hundred dollars to begin with.

 

Payday loan companies, like other lenders, are in the business of making money off people who do not have enough money for expenses that come their way. When customers pay the full amount on the payday loan within the original period, the company does not make much profit from the loan. Payday lenders want the borrower to struggle with repaying the debt and to have to renew it repeatedly. In this way, the lender makes a huge profit from a small loan.

Many states have outlawed the practice of payday loans and have tried to block predatory lending within their borders. However, as one door closes, another opens. Alternatives to payday loans, which are basically payday loans in disguise, have increased. Checkbook loans and rent-a-bank loans are available to anyone whose state bans traditional payday loans. Not much better than a payday loan, these loans are targeted at the same individuals-and they offer similar pitfalls.

 

Here is the good news! If you have fallen into the vicious payday loan cycle and can see no way out, you are a good candidate for bankruptcy. Payday loans are one of the types of unsecured debts that are completely discharged in bankruptcy proceedings.