Payday lenders position themselves as an alternative to an emergency fund. You’ll hear them say things like, “We can help you pay for car repairs, holiday shopping, or unexpected expenses.” This “help” comes at a very steep price: over 600% interest!
Here’s an actual example that I got from a well-known payday lender’s website:
Borrowing $800 for one pay period (usually 2 weeks), will cost you $1,009.56. This is an interest fee of $209.56, which translates into an annual percentage rate of 683%!
I know first hand that borrowing from payday lenders can turn into a vicious cycle. When I hit financial rock bottom, I owed three different payday lenders money. I ended up closing my checking account, letting their check bounce, and sending them all monthly payments to make good on my payday loans. I don’t recommend doing this because my credit rating took a beating! And I received plenty of collection calls, despite sending them money every month.
If you’re in a similar situation, the good news is that help is available. There are non-profit debt consolidation companies that can negotiate payment terms with payday lenders and help you stop the vicious cycle without destroying your credit.