Payday Loans

Fast Cash Pay Day Loans – A Financial Burden Or A Way To Get Out Of Financial Hardship?

Lenders that offer fast cash pay day loans often advertise these lending programs as an easy and quick way for needy people to get money to meet their temporary financial hardships. These types of advertisements attract a vast majority of low-income people, especially the ones who do not earn enough to maintain an emergency saving fund. But, people who borrow these loans to overcome the temporary shortfall in their cash flow fail to see the truth or they simply ignore it even if they see it. The truth is that the extremely high cost (whopping amount of interest plus other charges) of such cash advances is often significantly much higher than something that people with such low income can actually afford. This is how a small amount of loan borrowed to overcome financial hardship eventually becomes a financial burden.

Payday Loans Create (Not Overcome) Shortfalls In Consumers’ Cash Flow

Fast cash pay day loans borrowed to overcome shortfall in cash flow actually ends up creating further, much bigger shortfall. For example, if

a low-income person borrows $400 and they are supposed to repay $605, it should be no surprise if they fail to make the repayment on their scheduled due date and borrow another fast loan to ‘overcome’ this new shortfall – the cycle continues until the person becomes bankrupt. The research and surveys conducted by various consumer protection organizations and even by the Federal Trade Commission have found that the strategy to trap low-income consumers into an on-going debt cycle is something that has turned payday lending into a multi-billion dollar industry. In general, it goes like this –

- A low-income

borrower gets a $400 of small loan for a couple of weeks and is supposed to pay back $605.

- On the due date, the borrower makes a partial payment of, say, $100 and renews the remaining balance, which is $505, and is now supposed to pay back, say, $785.

- A person with low income is highly unlikely to pay back such a high amount of money in full in one installment. These are the people who do not earn enough to meet even their basic needs like food, rent and others. In fact, they borrow fast cash pay day loans to meet these needs only. So, this is almost impossible for them to make the full repayment in time unless they get a bonus or win a lottery. So, the cycle continues – they keep on making partial payments of a couple of hundred dollars every month and keep on borrowing new, bigger loans to overcome the new, bigger shortfalls created by the high cost of the same loans itself.

- This is how payday lenders make thousands of dollars of profit out of a very small loan of just a couple of hundred dollars.

As you can see, lenders offering fast cash pay day loans generate a vast chunk of their revenue from ‘repeat customers’. These are the customers who borrow again and again and keep on making partial payments every month. It’s a trap – a horrible debt trap, not just a financial burden. If you are looking for a way to overcome financial hardships, people with low income should stop looking a solution into this type of loan (or into any type of loan at all) because they simply cannot afford it. The best and wisest solution is to live within your means, and at the same time, exploring and taking advantages of all possible opportunities to increase income.

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