When unrealistic
expectations and desperation drive a consumer to take out a cash advance, they
may be turning to the same source to pay off their loan instead of using it as
a temporary way to make ends meet. Reports by The Pew Charitable Trusts
non-profit organization are looking to understand the effects, often
devastating, that the payday loan industry can have on American consumers.
The average cash
advance loan is around $375 and has approximately $55 in fees attached.
Although individual states are in charge of regulating interest rates and fees
for lenders, consumers pay proportionality larger amounts for borrowing on
small-dollar loans, in comparison to longer term personal loans through a bank
or credit union.
Short-term
lending is great for situations where a person needs cash in a hurry, doesn't
have an upstanding credit score, or won't qualify with a traditional lending
institution. The problem, though, is found in the ease of obtaining these types
of loans. Pew found that 58% of borrower's are already having a hard time
meeting their monthly financial obligations and are turning to cash advance
loans to deal with persistent cash shortfalls, temporary cash emergencies or
unexpected costs.
While these
short-term loans are expected to be paid back with the borrower's next
paycheck, it is being found that the average length of time it takes most
people to pay off their cash advance or payday loan is about five months. This is
causing a great deal of frustration and dismay for consumers turning to this
type of lending.
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