If you need cash quick, you may be better off asking friends or family instead of getting a payday loan. That’s because experts we talked to said you may end up asking those exact same friends or family for even more money to pay off a payday loan.
You’re probably seen the commercials on TV or the signs on the street — they’re offers for payday loans that will give you fast cash.
While they look like quick fixes to your problem, they may not be your best option, and when it’s all said and done, they make make it worse.
From behind her desk at the Better Business Bureau, Julie Wheeler is dedicated to a fair marketplace for businessesand customers.
“We get a lot of calls from folks who are trying to figure out how to pay for something, how to consolidate debt, you know how to get out of debt situations,” Western Virginia Better Business Bureau President Julie Wheeler said.
As a business advocate she knows the bills can quickly pile up. With signs all around offering quick help and fast cash for people who need it, is it really the best option?
“I think payday lenders are actually loan sharks and not lenders,” Virginia Poverty Law CenterExecutive Director Jay Speer said. “A lot of people tell me not to say that because when you think about loan sharks you think about the guy who breaks your leg if you don’t pay, but that’s just one type of loan shark.”
Industry experts said although the cash is quick and easy, the high fees and interest rates associated with the loan can leave some people in trouble.
“A significant number of payday lending borrowers default very early on in the borrowing cycle,” Director of State Policy at the Center for Responsible Lending Diane Standeart said. “This to us is an incredibly concerning signal.
The Center for Responsible Lending said its research represents the entire country. One of it’s most recent reports, PAYDAY MAYDAY, highlights the fact that nearly half of all borrowers defaulted within the first two years of their first loan.
It also showed that even after default, many still ended up getting another payday loan.
“This underscores the importance of even just a single unaffordable payday loan, it can have devastating consequences for payday borrowers,” Standeart said.
The experts said Virginia is a favorable market for the payday loan industry, although the Commonwealth does have some laws in place to help regulate companies.
One of those laws is a new one just in the last couple of years to Virginia — a state wide databasethat keeps track of people who are getting payday loans.
When someone applies for a new payday loan, his or her info is checked against this database to see if there are any other loans already in your name. This is all in an effort to cut down on people trying to take out multiple payday loans at a time.
New online loan services may be a digital front, but are just like the in person stores when it comes to offering money. The experts we talked to said many of the online loan websites don’t actually offer the money, but rather act as middle man to find a lender willing to make the loan.
The lender doesn’t have to be the one right down the street, and Speer said they’re typically not, adding that you don’t really know who you’re giving your information too.
“They’re not really interested in if you have the ability to repay it, because they’d actually prefer that you don’t repay it,” Speer said. “They want you to just keep paying the interest, a lot of people refer to it as a debt trap.
It’s a new take on a problem that isn’t going away.
“What we’ve known for a long time is that payday loans typically put borrowers in a worse financial position than when they started,” Standeart said.
The Western Virginia Better Business Bureau hasn’t received many complaints for payday loans in our area. But Wheeler said anyone looking for a loan should make payday loans, especially internet ones, his or her last option.
“People get in way over their head very quickly, and you don’t have any clue who you’re dealing with,” Wheeler said.