report: payday loans cost borrowers much

[xchrom]

http://hosted.ap.org/dynamic/stories/U/US_PAYDAY_LOANS_CONSUMER_AGENCY?SITE=AP&SECTION=HOME&TEMPLATE=DEFAULT&CTIME=2014-03-25-00-04-16

WASHINGTON (AP) -- About half of all payday loans are made to people who extend the loans so many times they end up paying more in fees than the original amount they borrowed, a report by a federal watchdog has found.

The report released Tuesday by the Consumer Financial Protection Bureau also shows that four of five payday loans are extended, or "rolled over," within 14 days. Additional fees are charged when loans are rolled over.

Payday loans, also known as cash advances or check loans, are short-term loans at high interest rates, usually for $500 or less. They often are made to borrowers with weak credit or low incomes, and the storefront businesses often are located near military bases. The equivalent annual interest rates run to three digits.

The loans work this way: You need money today, but payday is a week or two away. You write a check dated for your payday and give it to the lender. You get your money, minus the interest fee. In two weeks, the lender cashes your check or charges you more interest to extend, or "roll over," the loan for another two weeks.

[sendero]

1. If it isn't obvious to everyone...

.... it really should be. If you get a payday loan or a title loan or any similar emergency help for your financial condition it is highly likely that you have just entered an economic death spiral that it is almost impossible to recover from.

I have never understood why people faced with a difficult situation would resort to such measures which mathematically almost cannot end well.

I got my answer on a radio show a couple months back that studied the behavior of people when they are in crisis mode. To summarize, people in crisis mode develop an extremely short term type of thought process. They, and the study shows this is almost universal human behavior, take these short term measures that almost cannot end well in the longer term because they have completely abandoned worrying about the longer term.

This probably has its roots in survival strategies evolved through the ages.

[Victor_c3]

2. That is exactly it

I've been in a situation where I had a couple of those going. I had no other option. I had to get groceries and pay my car insurance and I had nothing to fall back on to purchase that stuff with. I totally knew I was getting screwed at the time, but there was nothing I could do and I had to have a car to drive to work and I had to buy groceries for my wife and kids.