Why 16 States In The US Have Banned Loans For Payday?
The loans for payday look like a very easy and attractive financing option, especially in a situation when you are hit with a temporary financial emergency and have no money to face the same. These loans are very easy to borrow and the best thing is that the approval comes quickly, which means you can get the much-needed cash within a matter of just a few hours. Even bad credit is not a problem because the lenders that offer such lending programs do not check your credit score to determine your eligibility for the loan. Having said that, it might seem to be quite surprising for some why 16 states in the US have strictly banned payday lending. Following is a brief rundown on some of the major reasons why so many states took this step.
Borrowers Were Getting Bankrupt
A large number of consumers who would borrow loans for payday would end up getting bankrupt. When these states realized this fact, they banned these lending programs. Now, the question is how such an easy cash advance program can push the borrower toward bankruptcy. The answer lies in the very fact that lenders charge an extremely high rate of interest and hefty amount of additional finances charges. For every $100 of loan issued for fourteen days, you are usually required to pay back over $150. Since the repayment period is usually not more than two weeks, borrowers often find it difficult to repay the same in a timely manner. The nonpayment attracts penalty charges and additional interest (at the same high rate) for every single day of delay. A very common practice is that consumers in such cases borrow another payday loan to pay off the previous one. For example, if they initially took $300 and now have $450 outstanding in their name, they will have to borrow a new $450 of payday loan, which will cost you around $700 on the due date. And, if God forbid, you fail to repay it again on the due date, you are into serious trouble. This practice usually results in a never ending cycle. You keep on borrowing ‘easy’ loans and eventually get yourself trapped into a vicious cycle of debt. This is who many consumers even have to opt for bankruptcy protection to get rid of their debt problems.
However, extremely high rate of interest is not the only problem with loans for payday. There are several other problems also, such as automatic rollovers, unfair collection practices, and many other such things.