Legalized Loan Sharks Lead Borrowers to Debt Trap
A survey conducted by DebtHammer finds that 90% of payday loan borrowers regret taking out their loan. That may not be surprising considering that interest rates can be in excess of 400% and it often takes five months or more to pay off a single loan.
Roughly 80% of those surveyed said that their payday loan left them in a worse position than they were in before they took out the loan. That’s because it generally takes borrowers roughly five months to pay off the loans, and by then they’ve paid an average of $520 in interest and fees on top of the original loan amount.
Short-term loans don’t help in the long run: Short-term loans don’t help in the long run: About 65% of respondents said they’ve had to skip paying another bill to pay back their loans. This is particularly troubling considering that a previous DebtHammer survey found that 58% of Americans expect to take out a payday loan or other short-term loan to pay for their holiday celebrations.
The DebtHammer survey also provided the following information relative to the victims of payday predators:
- The average number of loans a respondent has is four.
- The average interest rate paid by borrowers was 400%.
- The average amount borrowed by respondents was $819.
- The average estimated credit score of the respondents is 555.
While payday loans are designed to be a short-term solution for underserved borrowers in need of a quick cash infusion, that’s not how the industry is functioning. And while some states are cracking down on payday lending, the increase in online…