Scary Statistics You Should Know about PayDay Loans this Halloween

Happy Halloween from everyone at TLC!

 

 

From October to December the average American spends an EXTRA $4,721.50. That can put many people in some scary financial situations, leading them to believe a payday loan is a good financial solution. No matter how scary a financial situation may seem, the terms and outcomes of payday loans are always scarier. 

 

What are Payday Loans? 

A payday loan is a short-term borrowing where the lender extends high-interest credit based on the borrower’s income and credit profile. The payment period is typically two weeks, or when you receive your next paycheck. The principle for a payday loan is a portion of your paycheck. These loans charge extremely high-interest for immediate short-term credit, as the finance charge can range from $10 to $30 for every $100 borrowed. A typical two-week payday loan with a $15 per $100 fee equates to an annual percentage rate (APR) of between 400% and 5,000%.

 

Here are 5 Scary Statistics You Should Know about Payday Loans (via OppLoans

 

#1:  The average payday loan has an APR of almost 400%. 

APR (annual percentage rate) tells how much a loan is going to cost with interest and fees over a year. Since payday loans only have a two week pay period, they may seem cheaper than loans with longer pay periods. This is only true if you’re able to repay on time, after one time borrowing. As you’ll see, this rarely happens. 

 

#2: Over 80% of payday loans are rolled over or re-borrowed. 

A study done by the Consumer Finance Protection Bureau found that the majority of short-term, no credit check loans extend way beyond their two week pay period. The only reason payment periods are extended is if borrowers are unable to pay it back in time. If someone struggles to make the payment after two weeks, it’s rare they will be able to next time, when there are additional fees added. This is how payday loans trap borrowers in a never ending debt cycle. 

 

#3: The average payday borrower takes out 10 loans per year and spends 199 days of the year in debt.

The same study by CFPB found that payday loan borrowers are in debt more than they aren’t. Unlike other kinds of debt, payday loan debt does not help you build up your credit. Lenders do not report your payments to any of the credit bureaus, unless you miss a payment. Lenders will then turn your account over to collections and they will report you to the credit bureaus. 

 

#4: 69% of payday borrowers use their loans to pay for everyday recurring expenses.

A study done by Pew found that most payday loan borrowers are using them for recurring bills like rent, utilities, etc. The other 31% are using them for necessities such as car repairs and medical expenses. This means that most payday loan borrowers are those with no other financial choice, and are likely being taken advantage of by lenders. 

 

#5: Only 14% of payday borrowers can afford to repay their loan.

The study by Pew also found that borrowers can rarely afford to repay their payday loans. Even though payday loans are generally small amounts, borrowers are forced to repay them all at once. If they can’t, borrowers have to roll it over or re-borrow, which is why so many get stuck in debt cycles. 

 

Safer Alternatives

The good news is there are so many options other than payday loans that don’t trap borrowers in never ending cycles of debt. Consider a personal installment loan from TLC. They offer benefits such as: 

  • Lower interest rates 
  • Uses for a variety of purchases
  • Consolidating high-interest debt
  • A credit score boost 

If you’re caught in the cycle of payday loans and are struggling to get out, it’s time to take control of your finances with a TLC personal installment loan. They are a perfect solution to unexpected emergencies such as car repairs, medical expenses, travel, or even debt. We also provide access to educational resources and incentive programs. By offering an installment loan as an alternative to a payday loan we want to see you on your way to financial recovery.

 

More From TLC 

Our mission as a loan company is to help people when traditional banks have abandoned them and to design our loans to get people back on their feet. We consider all applications, so never hesitate to apply! The process is quick and easy and it’s possible to have the funds as soon as the next business day. 

 

Stay financially safe this Halloween and stay away from the scary trap of payday loans! Apply for a personal loan with TLC today, or contact us for any additional information!