A recent report found that Payday loans borrowers usually end up spending more money on fees, than the original amount of the loan borrowed.
The Consumer Financial Protection Bureau, which is a federal watchdog program reported showing that four out of five payday loan borrowers often times need an extension on the money they borrowed or the amount borrowed is rolled over within 14 days to the next pay cycle. When the loans are rolled over expensive add on fees are added to the amount already borrowed.
The loans are often times made to people with bad credit, a low monthly income, and many of the stores are located near military bases.
Twenty-two percent of the loans borrowed from payday loans are extended at least six times; 15 percent are extended at least 10 times, the report found.
Director for the CFPB Richard Cordray said, “We are concerned that too many borrowers slide into the debt traps that payday loans can become.”
The cash advances from payday loans work like this: a borrower needing a cash advance will have to provide previous employment records, pay stubs, and bank statements, before the unsecured loan is issued. The borrower then writes a post dated check for the amount of the loan, plus fees that payday loans will then cash the check at the borrowers next pay cycle.
At the next pay cycle the lender will either cash the check or if the account is short on funds the borrowed amount will be rolled over with fees attached.
The report gathered data from about 12 million payday loans in 30 states in 2011 and 2012. CFPB also found that four of five payday loan borrowers extend the amount borrowed over the course of a year.
Very few of the borrowers repay all their payday loan debts on time without re-borrowing within 14 days, and more than 64 percent renew the loan at least twice.
Payday Loans Don’t Payoff. Borrowers Ending Up Spending More Money on Fees.