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Payday loan stores seem to be
popping up everywhere and a few people think that they are the best things
ever, but in reality they are the tabloids of the credit industry, as far as
reputable credit institutions are concerned. It's obvious that they are
supplying a tangible need for the demands of the public, or else they wouldn't
be surviving. So if that many consumers are freely choosing to deal with them,
then why are payday loans bad?
Maybe the best way to illustrate
this point is to use our imagination a little bit and create a real-life
scenario that many people face.
Payday loan companies defend their
position by claiming that they are offering a service that is needed by many
people. More often than not, life deals a bad hand of unexpected problems that
you need help with. Why are payday loans bad, they ask, if you have car trouble
or a medical emergency and need fast cash now? It is an unbelievably quick and
easy way to solve the problem on the spur of the moment. However, for many, it
is also a way of getting into a nightmare that will seem like quick-sand.
Let's imagine that we have a young
family of five that has only one source of income. The dad goes to work and the
mom stays home and takes care of three toddlers. They are debt-free but yet
they are barely making a go of it. Suddenly, the car breaks down and all at
once they need money for mechanical repairs. In a situation like this, a payday
loan could look like their salvation, so why is it bad?
The family borrows $500 and is
charged 17.5% interest on the loan every two weeks. If they pay it back in two
weeks they will owe $587.50. What's so bad about that? Chances are that they
aren't going to have enough money to do it by the time it is due, because it
will be hard to come up with that much money in just two weeks. At that point,
they will be charged another $80.50 in additional interest. With that, their
$500 loan is slapping them with a total figure of $675. It's easy to see how this
is beginning to spiral out of control.
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