Payday loan handy, but interest rate's overwhelming
By Kirsten Orsini-Meinhard
Fort Collins Coloradoan
The people who enter the Consumer Credit Counseling Service fit no particular stereotype. They are teenagers and middle-age adults, business professionals and laborers — most of whom are wading through piles of bills.
Gannett News Service
But their common link is a controversial loan that's grown in popularity — a payday loan, which allows people to get cash advances on their paychecks.
A payday loan allows customers of Consumer Credit Counseling Service in Fort Collins, Colo., to borrow against their pending paychecks. They pay $15 to $50 in interest for every $100 borrowed.
Borrowers write a personal check for the amount of their pending paycheck, Lenders give cash up front, depositing the personal check on payday. The borrower is able to receive money immediately — but at a cost.
Lenders charge between $15 and $50 interest for each $100 borrowed during the loan period.
"It's an easy choice," said Sara Allen, executive director of Consumer Credit Counseling Service of northern Colorado and Wyoming. "You walk into a storefront and you can write a check and get the money to get the car fixed or pick up a prescription, if you don't have the money."
More than half the borrowers have family income between $25,000 and $49,999, according to a 2001 survey by the Credit Research Center in Washington. Most are usually 45 or younger and have a high school diploma. Thirty-six percent have completed some kind of college.
Consumer advocates criticize payday loans for their high annual interest rates, often ranging from 300 percent to 500 percent.
"People get into this cycle and they can't get out of it," said Allen. "It's difficult to untangle."
But payday lenders say their service offers an easy way out of unmanageable financial situations — preferable to asking a boss or a family member for help.
Most payday lenders require only a driver's license, a paycheck stub, a photo ID or a bank statement to receive the loan.
Lenders also claim that taking out a payday loan is cheaper than bouncing a check and paying a bank fee of about $25 a check.
