The Offered Deal
I will loan you $1 when you really need it, or think you do. In return you agree to pay me $400 over the next 12 months. How do I get to $400 from $1? That is simple. I loan it to you now, and you pay me in full in 2 weeks on your payday. I'll just take.17 cent of that $1 now as a service fee, and in two weeks if you don't pay me in full, I'll roll your loan over and charge you another service fee. All total, in 12 months you will have paid me about $400 dollars, and you will still owe me $1 - if you don't pay off the loan at the end of the first two weeks. What a deal!!!
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Generally speaking; "anyone taking a deal like this has got to be out of their mind."
Hooking the Victim
Every payday millions of hard working people in America are faced with more bills to pay, than they have money. Inflation, cut backs in hours and layoffs are straining budgets to the max. Things didn't just get this way. Federal government decisions through Congress relaxed or changed laws, which changed lending rules making it easier to borrow money. Many lending institutions seized the opportunity to make more money on risky short term loans. These loans were offered to consumers at a higher interest rate, supposedly to cover their risk.
Small payday loan storefronts opened across the country promising to help bridge the gap between not enough income and too much debt with small loans. Millions filed in seeking assistance. One by one loans were granted and put into service at huge interest rates and service fees.
Borrowers only needed to complete and sign a post dated check or authorization for withdraw; a type of money draft instrument, and they had the money they wanted or needed. The check or draft does not have to be covered until payday. This is a quick and easy process for both lender and borrower.
Mr. Murphy Moves In
Payday comes and borrowers know they must rush over to the loan office and pay off the check, or it gets deposited. In rushed agitation, people stream in paying on, or paying off their loans on payday. A couple of days later after groceries are purchased and other bills are paid, their money runs out. In order to survive for the next 10 days, borrower returns to the loan office and creates another loan.
This time Mr. Murphy comes by with his problems and decides to stay a while. Payday comes, but borrower can't pay off the loan in full. To keep from bouncing a check or bank draft, they pay on the loan with plans to pay it off next payday. No one told Mr. Murphy about this plan. Because of him the loan will roll over repeatedly for nearly a year.
Curing the Addiction
It appears Mr. Murphy has a vested interest in the payday loan business. He selects his targets, striking at the most inopportune time for his victim. The victims, caught short of resources and funds, turns to the payday loan industry to tide them over. Mr. Murphy moves in and quickly creates situations and issues making loan repayment nearly, if not totally impossible. This keeps victims on the hook for the loan and a place to reside for Mr. Murphy.
Evicting Mr. Murphy and his partner in evil requires planning, budgeting, stubbornness and determination. Planning for problems helps take some of the sting out, when trouble comes. It is always a good idea to stuff money away for emergencies. Dave Ramsey strongly suggests building an emergency fund up to $1000 dollars as quickly as possible. (www.daveramsey.com)
Refusing to "dip" into the emergency fund is essential for personal and family protection. An emergency is not "needing a few dollars" to go to a movie. This issue can be solved by turning on a movie on TV and popping some pop corn. A real emergency is your child falling and breaking an arm. You have medical insurance, but it has a $1000 deductible. If you have $1001 in your emergency fund, you just saved yourself a visit to payday loan quicksand.
Not all financial issues are this simple however, planning and preparation can make the sting of trouble less painful. Paying 400% interest on a loan that could have been avoided is an invitation to enter or remain in financial slavery.
The real cure for this illness is not more federal regulation - they are a large part of the problem. Personal responsibility, accountability, planning and gaining financial knowledge can go a long way to keeping Mr. Murphy's visits short and payday loans out of consumers' pockets.
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