How Do Payday Loans Work Blog

There is a lot of political debate as well as power teetering about payday loans these days and whether or not to continue regulating them, ban them altogether, or make a reasonable way of tracking and distributing these funds so that people don’t find themselves in trouble.  The key argument is that these loans pray on low income people and put them into a cycle of debt that makes it hard to get out of.  The opponents say that this cycle to often leads many to bankruptcy, but can payday loans put you into bankruptcy?

The Consumer for Responsible Lending seems to believe so and they support a campaign Federally to cap payday loans at 36%.  They hope that such a bill will be able to stop the high fees charged to many people to continue to refinance or renew their loans rather than pay them off.  Currently, fees are charged between 15-25% in many states and these are capped, while some states have gone even further by putting caps on the number of loans that one person can have a time and setup databases to track these transactions.  Other states have already taken further measures to either put more caps on the loans to make sure that people don’t get into any trouble with cash advance payday loans.

The short-term loan industry feels that steps are already in place to do what is necessary to protect consumers and they are able to make their own financial decisions.  They stress that these loans are for emergencies and help support many Americans that live check to check when problems arise or emergencies happen.  The amount charge is a small fee to administer the service and to make a profit to continue operating business.  They argue that the payday loans are not set up as installment payments nor intended to be paid over a long period. This is a one time charge for money they are loaning to people that often don’t have any other source of credit and would be a risk borrower.  If the loan is paid on time and not renewed, then the fee that is charge is quite reasonable and would not result into any cycle of debt or bankruptcy.

Payday loans are a part of society and have been so for many years with the practice dating back to the Roman period.  Borrowing money on a short time basis without the need for credit check is a convenient and useful service to have for many when emergencies arise and as long as use responsibly they are not in any way going to put a person into bankruptcy.  However, if a person does abuse payday loans and doesn’t have the means to pay them back, then they could find themselves into a situation that may result in bankruptcy.  The key to staying out of the situation is to avoid using them if possible. Plan for raining days, save money for unexpected things, and hope that nothing happens, but if something come up then make sure to have a back-up plan and to only take on what you can handle.

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