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Pay day loans: financial freedom or bondage?
by Capt. Jared Hawkins, USAF
22nd Judge Advocate

10/13/2006 - MCCONNELL AIR FORCE BASE, Kan. -- Clever slogans, catchy jingles, promising billboards and bright flashing lights - the warning signs of the typical payday loan store. Payday loan stores have become ever more popular on street corners throughout Wichita and throughout the United States in recent years. 

That payday loan stores offer easy accessibility to "quick cash" for an important occasion is well known; less well known are the financially incarcerating characteristics of the typical payday loan. 

According to a recent Department of Defense report on predatory practices directed at members of the Armed Forces and their dependents, payday loans are "small loans secured by the borrower's personal check or an agreement to electronically withdraw payment from the borrower's bank account." The typical average loan of about $350, is usually due in full the next payday and usually has an annual interest rate from 390 to 780 percent. At interest rates that high, the average borrower pays back $834 on a $339 loan - that's $495 in interest! 

According to a study based on the recent DoD Report, the dangers of payday loans include: 

(1) Triple digit interest rates. 

(2) Short minimum loan terms - 75 percent of payday customers are unable to pay their loan on time and consequently get a loan "rollover" at additional cost. 

(3) Single balloon payments - Unlike most consumer debts, which allow for partial installment payments during the loan term, with payday loans, the borrower must pay the entire loan back at the end of two weeks. 

(4) Simultaneous borrowing from multiple lenders - borrowers get trapped on the "debt treadmill" by taking out loans from one payday lender to repay another. 

Not only are payday loans financially dangerous, but evidence suggests some payday loan stores intentionally target active- duty members and their families. "Notably, payday lenders ... situate themselves in close proximity to the front gates of military installations" said the DoD report. In fact, the report stated, according to some studies, one in five active-duty families have been payday borrowers, and "predatory payday lending costs military families over $80 million in abusive fees every year." 

Despite the implicit promises of the typical payday loan commercial, taking out a payday loan is more likely to put you in financial bondage than give you the financial freedom, for which you are looking. 

If you have become trapped in the vicious cycle of payday loan borrowing and repaying, please seek help in managing your finances from a knowledgeable friend, family member or supervisor.
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