Last updated Oct. 20, 2018.
If you’ve ever run into a sudden, unexpected expense, you may have considered taking out a payday loan. Payday loans go by a variety of names, such as cash advance, payday advance, or deposit advance, but they all amount to the same thing: a quick and easy way to get that much-needed cash in order to survive financially for another day.
However, payday loans can lead to further financial hardships that extend well beyond your initial need for cash. Payday lenders often prey on consumers with usurious rates of interest. To help you understand just what you’re getting yourself into when you take out an Ohio payday loan, this article explains the truth about payday advances.
How Do Ohio Payday Loans Work?
The typical payday loan is for a relatively small amount of money, but requires you to pay a high interest rate. Say, for example, you need to borrow $100. To secure the $100, you will be required to write a check for $115 that the lender will cash when you have the money in your checking account. You will agree to pay the $115 in a set period of time, usually a week or two.
The scenario above is hypothetical. The typical interest rate for a two-week payday loan is anywhere between 15% and 30%. The example above is calculated with a 15% interest rate.
But that’s the 2-week interest rate. Spread that percentage out over a year, and you get the Annual Percentage Rate (APR). The Federal Trade Commission (FTC) estimates that the APR for a payday loan often approaches 390% or higher. This is not such a good deal. For most bank loans, the APR will not exceed 18%.
Even in Ohio, where state law supposedly limits interest rates and fees for Ohio payday loans, lenders relying on a loophole in the law still charge APRs of up to 600% or more.
Hence, payday loans—including Ohio payday loans—are something that should be avoided whenever possible.
What Happens if I Do Not Pay Back My Ohio Payday Loans on Time?
Failing to pay back on time is where most people run into trouble with Ohio payday loans. If you can’t pay back, then you might elect to extend the loan through a “roll over,” which means you must pay another fee. Hence, in the above example, you would probably have to pay an additional $15 to extend the $100 loan for another 2 weeks.
Assuming you can get the money to pay back your extended loan, you have now paid $130 in order to get a $100 loan.
Unfortunately, studies have shown that 99% people who take out one payday loan will take out at least one more in the course of a year. This means that the fees keep adding up, and that these borrowers are paying significantly more than they can afford to obtain the cash that they need.
Thus, you are merely digging yourself a deeper hole. If this trend continues, the lender can take legal action—that is, the payday lender can sue you and take whatever property of yours is necessary to satisfy your debt. If you are unable to pay back a payday loan, and the lender has threatened to take legal action, you should speak with an attorney.
Are Ohio Payday Loans Safe? What About From My Bank?
Not always. The FTC has stated that many payday lenders engage in illegal lending and debt collection practices. The FTC reports:
Some collectors harass and threaten consumers, demand larger payments than the law allows, refuse to verify disputed debts, and disclose debts to consumers’ employers, co-workers, family members, and friends. Debt collection abuses cause harms that financially vulnerable consumers can ill afford. Many consumers pay collectors money they do not owe and fall deeper into debt, while others suffer invasions of their privacy, job loss, and domestic instability.
Thus, if you are being hounded about an outstanding debt by a payday lender that has used any such tactics, you should speak with an attorney to know your rights.
If you’re thinking of taking out a payday loan from your bank, you should see what sort of fees your bank charges first. If you are going to take out a payday loan, it’s worth shopping around for the best deal. However, banks aren’t likely to offer much better deals.
In fact, if you take out a loan from your bank, then your bank may be able to take the money you owe directly out of your accounts, leaving you nothing for other expenses.
Ohio Payday Loans Should be a Last Resort
If possible, avoid taking out a payday loan, and do whatever you can to avoid taking out more in the future. Do whatever possible to improve your credit rating. That way, you might be able to secure a bank loan at a much more manageable interest rate. Moreover, you should consider taking out a credit advance loan from your credit card company if it offers a better interest rate.
Basically, if you’re short on cash, explore all of your options to be sure you’re not overpaying.
Can You File Bankruptcy on Payday Loans?
Finally, if you’re struggling with debt—whether Ohio payday loans, credit cards, or otherwise—consider bankruptcy. Although not every type of debt is discharged in a bankruptcy filing, payday loans can be. Because Ohio payday loans are an unsecured debt, they can be eliminated by filing for Chapter 7 bankruptcy.
If you’re seriously indebted to a payday lender and live in Southern Ohio, we’ll be happy to review your case free of charge. To schedule a free initial consultation with an experienced Dayton bankruptcy lawyer, call 937-401-5000 or contact us online.