As the Economy Worsens People Look to Payday Loans
As the economy gets worse payday loans, which are use by working-class people, are increasingly being sought by middle-income families. These middle-income families use to get short-term loans from either a bank, credit union, or credit cards. However with the recent credit crunch and recession these people have turned to high-interest payday loans.
Payday loans are a type of short term loan that allows people to borrow money until the following payday, typically within two weeks. All that you need to qualify for one of these payday loans is proof of employment, and a post-dated check payable to the payday lender for the amount plus their fee. The maximum amount the borrower can get varies from state to state; in Indiana, the maximum per loan is $550, with an annual percentage rate of 349.36 percent. The lower the loan, the higher the APR. If the $550 loan is repaid on time, the fee is roughly $74. People can get trapped in when they can not repay the loan and have to renew it multiple times, each time having to pay the fee. The maximum amount of times the payday loan can be renewed in Indiana is six times. Which means if someone borrowed $550 and renewed it each time they’d end up having to pay $993.41 by the end.
Payday loan companies say that they provide a much needed service to people without good credit or who need short-term credit. However many ward that once people start getting into the habit of taking out payday loans they end up in a cycle that eats up their paychecks with annual interest rates of nearly 400%.
More middle-class families are using payday loans “to put off the day of reckoning,” said Elizabeth Warren, a Harvard law professor who is chairwoman of a congressional watchdog panel on the $700 billion bailout for the U.S. financial system. ”Too many families live with no cushion, so when something goes wrong, they turn to payday lenders.”
To read more about as economic uncertainty mounts, more middle-class families are learning that payday loans add up head on over to Indystar.