Studies show Payday Lending is a vicious cycle

post-Payday-LoansA simple zip code search of where majority (if not all) payday loan businesses are physically located will tell you the communities they are attempting to “serve”.

Payday loans are basically a two-week advance on your paycheck (if you get paid twice a month/bi-weekly).

After further review, I discovered the havoc these loans play on monthly earners over and above the bi-weekly earner. The rules on payday lending differ for them- they can only take out renewal loans 11 times a year (after initial loan).

Here are some numbers:
As a group (bi-weekly and monthly earners)-
* 80% of loans are rolled over or followed by another loan in 14 days
* 15% of new loans is followed by a loan sequence (loan taken w/i 14 days of a loan being paid off) at least 10 loans long
* 80%+ of loan sequences that last for more than one loan, the loan size is the same or larger than the first loan when completed.
* In 11 months 64% of borrowers renew, 15% repay, 20% default

Monthly earners:
* 58% receive gov. benefits
* 40% floated their initial loan for a year (11 additional months)

What you may not realize is that these numbers only consider payday loan sequences at a SINGLE location. Many caught in this system jump between several payday loan businesses attempting to maintain all these loans.

…and I didn’t even mention the usury percentage rates they are legally allowed to charge.

What are your thoughts on payday lending? Does it help? Is it truly a service? Is it a hinderance?