People try to delay filing a Las Vegas bankruptcy when things go bad. Filing for bankruptcy feels to many like giving up, and people hope things will turn around for them. In the meantime, they deplete savings, use their credit cards for everyday purchases, and as a last resort visit payday lenders.
The concept is simple: the borrower writes a post-dated check to the lender and the lender pays that amount in cash minus a lending fee. After two weeks, the lender deposits the check. Things go bad from there.
- The terms are out of this world. For a two week term, the interest rate is often 18 percent. This translates to an effective annualized rate of 7,294 percent. After eight weeks, compound interest doubles the original sum.
- The lending fees are massive, even up to 25 percent of the face value of the check. The likelihood of repaying this is quite low, which leads to default.
- If the borrower can’t pay at the end of the term, then there are only two options: let the check bounce or take out another payday loan. Subsequent payday loans prolong the problem and cost more in lending fees. Letting the check bounce will lead to a fee from the bank plus the payday loan and the fees. Due to the high interest rates, the accrued value will be substantial, possible double or more what the borrower borrowed. Then the payday lender will sue.
- In a paper titled, “Do Payday Loans Cause Bankruptcy?” [http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1266215], two law professors argued that payday lenders actually discourage borrowers from paying on time, contributing to an endless cycle of debt.
- Payday lenders will sometimes deceive their borrowers into believing that they will go to jail if they fail to pay them, which is untrue. It is not a crime to bounce a check, unless the person writing never intended to honor it, and payday borrowers intend to repay the lenders.
Payday lending is a good idea gone bad. Sure, some people may need a boost before they’re paid, but payday lenders frequently encourage so much debt that the borrower ends up paying more than had they not bothered. Las Vegas bankruptcy attorneys are generally a far better solution than a payday lender.
For more questions about bankruptcy in Las Vegas, please feel free to contact an experienced Haines & Krieger Las Vegas bankruptcy attorney at 702-880-5554 for a free initial consultation.