Borrow for Free Imagine running into a website stating, “The loans from this site are without fee, interest or cost (0.00% APR)…” (borrowforfree.org). Hopefully, this statement sets off an alarm. Cities and towns everywhere, along with the World Wide Web, have an ample supply of companies that claim to be able to help you until your next paycheck arrives. Pawnshops, check cashing services, and payday loans are places that the subculture of bad credit, low income, and financially incompetent people seek, in order to provide a quick fix to a difficult situation. Out of the above mentioned businesses, payday loan companies are the worst choice for any consumer in need of additional money. Better alternatives to payday loans are sparse and difficult to find. Virtually, all payday loan companies exploit this subculture within our society. This system of lending often compounds the borrower’s financial problem exponentially. The increasing debt, lack of resources and desperation often lead to other less than legal means of obtaining capital. Most borrowers are oblivious to charitable organizations that can provide a wide variety of solutions for those that are struggling with their finances. Their fate, to remain in financial turmoil, seems destined to become irreversible. Thus, there are many negative effects of pursuing a payday loan. Three negative effects of payday loans are: compounding the borrower’s financial problems, it increases their debt, and lastly the borrower is propelled into a never-ending cycle of financial mistakes. Payday loan companies specifically target people that are already financially unstable. Instead of being provided a solution, this part of our population ends up compounding their financial problems. With no credible institution willing to lend any amount to these individuals, payday loan companies exploit this void with outrageous fees for their short term loans. Many states allow payday loan companies to set their rates extremely high, due to the risk involved with lending people with a poor credit history. Payday loan companies charge $15 to $25 per $100 borrowed as the fee for providing the loan without any credit check. On its surface, 15% to 25% may seem reasonable to the borrower, who has less than a stellar credit history. When we examine the APR associated with short term loans, the APR calculates to 350% to a whopping 700% APR (Facts on File). The profits, which payday loan companies achieve from the initial fees, are only the beginning of their revenue source. The borrower often cannot afford to repay their debt to these institutions due to the “generosity” of the lender. Borrowers are always informed that it is okay to not repay the loan immediately. Payday loan companies are very quick to offer assistance through an extension of the original loan. This practice is referred to as a re-loan. During the re-loan process, the borrower is only required to pay the original fee of 15% to 25% (Facts on File). On a loan of $500, this fee could be as high as $125. Thus, the borrower loses a significant portion of their paycheck, which is now devoted to keeping the original loan “alive.” This results in the borrower being left in deeper financial turmoil. Consider acquiring a short term loan in the amount of $500. Without solving the original problem that led to the need for the loan, the borrower is compelled to pursue the option of a re-loan. Many payday loan companies will allow the borrower to use the re-loan process up to four times. Now, the borrower has paid $500 worth of interest on the original loan of $500, and they still owe the amount of the original loan. In desperation, the borrower ends up in a never-ending cycle with more financial stress than what they had prior to the payday loan process. Entering into the payday loan process leads the borrower into a never-ending cycle (Facts on File). Even when a person is fortunate enough to be able to pay-off one of these loans, but nothing has changed regarding their original financial circumstance. The borrower receives no assistance in learning to create and adhere to a budget, and even if they do, the lure of immediate relief often leads the borrower back to resorting to a payday loan. Without financial discipline, and a small emergency fund in a savings account, the borrower is still susceptible to this predatory system of lending. Sadly, many members of this subculture are not only addicted to a quick financial fix, but having complicated their life even more, choosing to return to the behaviors that exasperated their problem. Desperation may result in a loss of hope and when a person loses hope, they can easily convince themselves to forego any remaining morals that they once had. Once this occurs, the borrower is more prone to the temptation to use illegal means to obtain a solution to a problem that never goes away. Although there are many reasons not to subscribe to payday loans, three are listed above. There are many negative effects of payday loans (compounded financial problems, increased debt, and a never-ending cycle of financial mistakes, etc…), that can be avoided by the borrower seeking help from governmental and charitable organizations. The interest that is charged for these payday loans should be enough to scare away most borrowers. Unfortunately, these borrowers do not believe that better option exists. The re-loan process only adds to the borrower’s debt problem. The sum of the poor choices made only compound the desperation and the borrower becomes trapped in a never-ending cycle. The possibility of borrowing for free does seem too good to be true. At first glance, a company by the name of Grace Period appears to be equivalent. However, Grace Period is a charitable organization that is making a small impact against payday loan companies. Grace Period does offer a completely free loan if paid in full within thirteen days, and very reasonable interest rates after the “grace period (graceperiod.org).” The urgency of finding a solution to one’s financial struggle makes it difficult for the borrower to spend precious time on researching all of the alternatives to payday loans. The effort of avoiding these traps are worth the time it takes to do the research. Only through education and the possible hope of properly administered charitable resources can save and improve these peoples’ quality of life. Works Cited "Borrow for Free." Grace Period Home Comments. N.p., n.d. Web. 07 June 2013. "Payday Loans." Issues & Controversies. Facts On File News Services, 24 Jan. 2011. Web. 7 June 2013. . "How to Handle Payday Loans." Bills. N.p., n.d. Web. 07 June 2013.
Posted on: Fri, 14 Jun 2013 23:10:52 +0000
Trending Topics
Recently Viewed Topics
© 2015