The argument to place these fringe financial services in our community is pretty much the same. And think about it. If you are in a low-income community and the only place you see for financial transactions is a payday lender or a rent-to-own shop, it becomes a normal situation.
He continues by calling out the financial disparity between white communities and communities of color, citing the large gap in interest rates as a possible cause:
And so what happens is if one community is paying no more than 15% to borrow money and the other community is paying 300-400% minimum, the community will never get out of poverty, Corbett states.
To gain access to a fast cash advance, borrowers are often required to grant the payday loan lender access to their bank account. While setting up direct deposit to make bill and loan payments is pretty common now, this account access works a little differently.
“Some payday lenders attempt to recover their money by taking what they’re owed directly from borrowers’ checking accounts, which borrowers grant access to as a condition of the loan. But unexpected withdrawals from the [payday loan] lender can rack up pricey overdraft fees and damage credit scores,” CNBC reports.
Many payday lenders have you write a postdated check meaning in this case, a check that is dated to be cashed after your next payday when you get the loan. If you don’t have enough money in your account when they cash the check, you could face expensive overdraft fees and bounced check fees (also known as insufficient funds) from your bank as well as returned or failed payment fees from the lender.
These extra fees add to the already high costs charged by payday lenders. If you find yourself in this situation, contact your bank immediately to discuss your options for protecting your account.
Con 6: Payday lenders can sue you for the money you owe
Just like other lenders, if you fail to pay a payday lender for long enough, they can take you to court and try to get a judgment against you for failure to repay a debt. If a judgment is ordered, you could face wage garnishment, imprisonment or other consequences.
Keep in mind, however, that legal battles are expensive. In the case of small-dollar loans, it’s not always worth the time and money involved for the lender to sue. However, some companies or debt collectors will threaten to sue or threaten wage garnishment to scare you into paying them back quickly.
If you receive these threats, consider getting help from a local nonprofit organization focused on debt management, an Accredited Financial Counselor or a Certified Credit Counselor who could help you with your unique needs.
Con 7: They don’t help you build credit
Last but not least, payday loans do not help you build credit because they do not generally report to the credit bureaus.
Some versions of payday loans in some states allow you to work your way up to lower interest loans that can be paid in installments and that report to the credit bureaus. However, this installment loan option is rare and little information is available on how long it takes, or how many unreported loans at high interest rates are online Barberton payday loans required before you’re able to build credit with their loan.
Similar to medical debt, payday loans usually only report your debt to the credit bureaus if it gets sent to collections. So while payday loans can’t help you build credit, they could hurt your credit if you’re not careful.