Advocates Warn Consumers About Predatory Payday Loans

Krystle Waters from Riverside said the loan she got was “ridiculous”. She took out a $6,000 payday loan and used her car as collateral. When it was all said and done she had to pay back a total of $16,000. That is over 100 percent of what she borrowed. And the only reason she didn't end up paying more is because she paid the loan off early.

That's why consumer advocates such as the Center for Responsible Lending are trying to eliminate what they believe to be abusive financial practices by payday loan lenders. Unlike bank loans, payday loans are very risky. And since there is no limit to the amount of interest the lenders can charge, people end up in a cycle of debt they can't break free from.

According to consumer advocates, payday loan companies prey on those who can barely afford to pay their own bills. As a matter of fact, most borrowers will take out another loan just to pay off the one they already have. California state Senator Ted Lieu says what these companies are doing is “completely outrageous”.  He says many of the payday loans are bundled together and sold to investors on wall street.

In the state of California there are more than 2,000 payday loan companies. And since 2006 the number of payday loans taken out in the state have increased. Payday loan lenders let borrowers take out small loans usually less then $1500. The loan must be paid back in a short period of time or interest fees and late fees will pile up. The interest rate can be as high as 459 percent.

So while payday loans can help when you are in tight situations, try to find other options first. Some credit unions now offer payday style loans. If that doesn't work try to borrow from family and friends. A payday loan should be your last resort. If you do have to take one out make sure you borrow only the amount you know you can immediately pay back on your next payday.