Consumer Inertia & Payday Loans

Consumer Inertia is when you buy the same thing all the time, never trying anything different or even considering other choices, similar to the cycle of payday loans. Sure, payday loans present an aroma of kindness and sensibility—instant cash for immediate use.  The TV ads look so sympathetic, plus cold, convenient cash freshens the situation with greenback gratification.  However, payday loans provide a false sense of wealth. The problem with payday loans is that they are habit-forming and tend to lead to greater poverty.   A payday loan is a cash advance secured by personal check or paid by electronic transfer.  You write a check for the amount you want to borrow plus the fee for borrowing the money.  The lender gives you the amount borrowed and agrees to hold your check until your next payday.  However, if you come up short on payday, you have to pay new fees to roll over the loan, thus making the borrowed money more expensive each time the loan is extended. The Federal Trade Commission gives the following example: Say you need to borrow $100 for two weeks. You write a personal check for $115, with $15 the fee to borrow the money. The […] Read More

A Minute to Rethink Payday Loans

A payday loan is a cash advance secured by personal check or paid by electronic transfer.  You write a check for the amount you want to borrow plus the fee for borrowing the money.  The lender gives you the amount borrowed and agrees to hold your check until your next payday.  However, if you come up short on payday, you have to pay new fees to roll over the loan, thus making the borrowed money more expensive each time the loan is extended. The Federal Trade Commission offers a one-minute audio tip to help you rethink payday loans.  It is one minute that could save you a lot of time and financial heartache, available online at  http://www.consumer.ftc.gov/sites/default/files/audio/downloads/audio-0057_payday-loans_hq.mp3.   Read More

The Cost of Fast Cash

There are a lot of ways to spend insane amounts of money—marriage, alimony, and payday loans are among them.  The cost of fast cash may be a luxury you cannot afford. A payday loan is a cash advance secured by personal check or paid by electronic transfer.  You write a check for the amount you want to borrow plus the fee for borrowing the money.  The lender gives you the amount borrowed and agrees to hold your check until your next payday.  However, if you come up short on payday, you have to pay new fees to roll over the loan, thus making the borrowed money more expensive each time the loan is extended. The TV ads look so sympathetic.  Sure, everybody needs cash from time to time, but with payday loans, a little loan can cost a lot of money, and the more you cannot pay it back, the greater the amount becomes to borrow in the first place. According to the Center for Responsible Lending, the average payday borrower has nine transactions per year, and remains in payday loan debt for 212 days out of 365. Payday loans are not fraud, but they can cost consumers a lot.  […] Read More

Negative Feedback Loops in Personal Finance

Storefronts for payday loans outnumber Starbucks by about two to one…and both create consumer feedback loops. The overpriced coffee supposedly gives consumers the feeling of opulence, even if that is the only luxury item (or the last luxury item) they can afford.  The poorer you get, the more essential usurious brew becomes because it is a denial of your situation—a rebellion against dire circumstances.  You cannot afford it; therefore, you must have it.  Thus a negative feedback loop of consumer debt. Payday loans come from a different mindset…and a different neighborhood.  Probably you do not care as much about the roast—you need cash fast.  The TV ads look so sympathetic.  Sure, everybody needs cash from time to time, but with payday loans, a little loan can cost a lot of money, and the more you cannot pay it back, the greater the amount becomes to borrow in the first place.  Thus another feedback loop—but this one obligates you into more and more debt, and it is harder to get out of than caffeine addiction. Payday loans rely on repeat customers.  They present an aroma of kindness and sensibility—instant cash for immediate use.  A bouquet of greenbacks freshens up the situation […] Read More

Payday Loans: The Poor Get Poorer

If it looks too good to be true, it is probably a payday loan.  While payday loans have to disclose in a dollar amount and annual percentage rate regarding how much they cost to borrow, they also rely on repeat business to extend the loan, costing the consumer a rate of nearly 400 percent or more.  Whether or not the borrower understands that, it costs them money. Payday storefronts outnumber Starbucks by about two to one, but do not tend to be located in the same neighborhoods.  Marketed towards low-income demographics, the loans build a clientele on recycled debt rather than a long-term positive impact.  Repeat borrowers make up 98% of payday loan volume. Payday loans are on the watch list for the Federal Trade Commission as well as the Center for Responsible Lending because they are a great way to make money…if you are the lender. A payday loan is a cash advance secured by personal check or paid by electronic transfer.  You write a check for the amount you want to borrow plus the fee for borrowing the money.  The lender gives you the amount borrowed and agrees to hold your check until your next payday.  However, if […] Read More