Use Payday Loans With Care

Online, April 2, 2010 (Newswire.com) - The Center for Responsible Lending, a private, nonprofit, nonpartisan research and policy organization, based in Washington D.C. reports that "payday churning" - the process of repetitive borrowing of loans, with each subsequent loan used to pay back the prior loan - is responsible for more than 75% of the payday industry's annual loan volume. Borrowers who, after repaying one payday loan, must take out another before their next paycheck run the risk of getting themselves in even deeper financial trouble than that which prompted them to seek a short-term loan in the first place. Often, borrowers who fall into this pattern will take out subsequent loans as quickly as state law allows.

Payday loans are often the only recourse for those experiencing a temporary shortfall of funds. The responsible use of a short-term payday loan to pay an unexpected or higher than usual utility bill or other emergency financial situation can be beneficial - but payday loans come at a high cost.

Payday lenders generate loan volume by making a payday loan due in full on payday and charging a sizeable fee-now nearly $60 for an average $350 loan. This often guarantees that low-income loan customers will experience a monetary shortfall before their next paycheck and require a new loan to stay afloat. "Churning" accounts for 76 percent of total loan volume, and for $20 billion of the industry's $27 billion in annual loan originations, according to the CRL.

"59 million payday loans are opened, not due to a financial emergency, but primarily because the borrower could not repay a previous payday loan and afford their regular expenses without it." (Phantom Demand CRL, 7/1/2009)

These millions of "churned" loans each year by the payday lending industry costs borrowers $3.5 billion in fees.

If you do find yourself in the position where you need a loan to provide cash to solve a short term emergency, a personal loan or payday loan may be an option - but always be aware of the fees and costs involved before signing on the dotted line.