My Military Space
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
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
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
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