By Robert J. Semrad | Published October 08 2014 |
Online Payday Loans More Likely to Lead to Devastating Debt, Bankruptcy
Payday loans have always been bad news. But when cash advances are obtained online, they can be especially dangerous, according to a new survey.
With a payday loan, a borrower pays a fee to take out a short-term, high-interest loan against his or her paycheck, typically for a two-week period. Problem is, by the time most people are low enough on cash to turn to payday lending, they are also likely to have trouble coming up with the money to pay back the loan in such a short amount of time.
Unable to make good on the original loan, the borrower pays another fee and rolls the loan over. As fees mount and the balance grows, cash-strapped consumers can quickly become trapped in a vicious cycle of debt.
Traditionally, a borrower might pay $20 for every $100 loaned. However, online payday loans often charge much more. According to a recent survey by Pew Charitable Trusts, online lenders have APRs as high as 700%, compared to 300% at brick-and-mortar payday loan centers. (Compare either of these to the 25% APR that a consumer with poor credit might pay, and you quickly realize how truly predatory payday loans are).
Not only do online payday loans come at a shockingly high price, they also come with abusive practices. While online loans make up just one-third of payday loans, they account for 90 percent of complaints to the Better Business Bureau. About 30 percent of borrowers say online payday lenders have threatened them. Another 32 percent report having lenders make unauthorized withdrawals from their account, often resulting in insufficient funds fees. And nearly 40 percent believe lenders sold their personal information to a third party.
With impossible fees and super-short repayment periods, payday lenders think they have struggling borrowers over a barrel. But consumers have a secret weapon: bankruptcy.
Bankruptcy was designed specifically to help people eliminate overwhelming unsecured debts, including payday loans. Most payday loans can be eliminated entirely through Chapter 7 bankruptcy, and in some cases, paid off with a Chapter 13 bankruptcy repayment plan. In fact, payday loan debt is one of the most common reasons debtors file for Chapter 7, behind medical bills and divorce.
Not only can bankruptcy provide relief from current payday loan debt, it can also prevent future debt from accumulating. By eliminating other forms of debt such as credit card balances and medical bills, bankruptcy can free up more money each month – reducing the chance that you’ll have to turn to a high-interest short-term loan to make it to the next paycheck.
If you’re stuck in a payday loan trap, it’s time to consider getting professional financial help – before the situation inevitably gets worse. Bankruptcy may be your ticket to a debt-free future. To speak to an experienced bankruptcy attorney about your debt troubles, call DebtStoppers today or visit us online for your free consultation and debt analysis.
Online payday lenders charging 700% APRs, employing 'abusive' practices, by Blake Ellis, CNN Money