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Why payday loans can be a dangerous trap

On Behalf of | Mar 16, 2022 | Bankruptcy

Florida is among the states that still allow payday loans. These can seem like a fast and easy way to get money when you don’t have enough to get you to your next paycheck or a costly emergency comes up. Basically, they just require that you show a pay stub or other proof of your income along with your bank account information to get an advance on the amount of your next paycheck. 

Payday loans may be the only option to get needed cash for people who can’t qualify for a credit card. People with poor credit often get payday loans because they don’t require a credit check. 

How they work

The idea is that you repay the loan (along with fees and interest) when you get your paycheck. You can extend the loan or get another one if you still need cash. However, this can become a vicious (and expensive) cycle.

If you eventually default on a payday loan, you’re going to end up with even worse credit, owing a considerable amount of money just in interest and fees and facing collectors. Because payday lenders have a not-undeserved reputation for preying on people with no savings, poor credit and other financial issues, some states have outlawed them completely.

Florida’s restrictions

Floridians have gotten literally billions of dollars in payday loans in recent years and paid millions of dollars in fees. The state has enacted more than one “deferred presentment” law and other statutes to place restrictions on the amount that can be lent, how long borrowers have to repay the loan, the maximum fee that can be charged and more. Florida also has a “cooling off period” of one day between the time a person repays one loan and can take out another. 

Even with limits, payday loans are not a financial strategy – certainly not in the long term. If you are in a position where payday loans are your only way of making ends meet, it’s wise to consider other options, including bankruptcy, that can help you get a fresh start.

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