Junk Debt 101

We see the commercials on TV telling us how easy it is to get a “payday” loan.  It seems like there are “payday” loan businesses on every corner as we are driving around doing our errands.  We receive mailers telling us that we are guaranteed “x” amount of dollars with no credit check.  With all we are being told, Payday loans must be alright… or are they?

There are some basic facts that you should know if you are thinking about taking out a payday loan.

1.  A payday loan is a short-term loan. Repayment periods range anywhere from 7 days to 40 days.  The term depends on the date of your payday.

2.  You may be required to post date a check for the amount of the loan plus fees. On the day the loan is due, the lender can and will run the check through the bank.  You will incur overdraft charges and fees if you do not have the money in the bank to cover the check.

3.  You may be able to borrow between $100 – $1,000. This depends on your state’s regulations.

4.    The APR (Annual Percentage Rate) of the loan may be 400% or more. They do not carry a low interest rate like conventional lenders.

5.    The shorter the term is for the loan the higher the APR.

6.  You are legally bound to repay the loan. If you do not have the money to repay the loan at the time the loan is due, refinancing is always an option.  This creates what is called the “debt trap”.  We’ll talk more about that later.

These are just a few facts about payday loans.  In future posts, we will discuss payday loans in more detail.  If you are considering taking out a payday loan, you may want to do more research to make sure you know all that you need to know to keep you out of the “debt trap” that can be created by payday loans.

Till next time,

JT Locke

Junk Debt 101