Con 3: It’s easy to get trapped in a debt cycle

Each time you extend (rollover) a loan, a payday lender charges additional fees, increasing your out-of-pocket costs for borrowing the money.

Rolling the loan over can significantly increase the amount of time it takes to repay the loan, sometimes adding months or years to the original two week terms.

Con 4: They target low-income, minority communities

According to a 2016 report by the Center for Responsible Lending, payday lenders are mostly located in minority communities. In fact, the report found, there are about 8.1 payday loan stores per 100,000 people in African American and Latino communities, while mostly white neighborhoods only had about 4 for every 100,000 people.

According to Keith Corbett, Executive Vice President of the Center for Responsible Lending, payday lending in communities of color is comparable to Jim Crow laws. In an NPR interview Corbett states that in the Jim Crow era, everyone said it was a free market, so it was “okay” for people of a certain color to have to ride in the back of the bus.

“The argument to place these fringe financial services in our community is pretty much the same. And think about it. If you are in a low-income community and the only place you see for financial transactions is a payday lender or a rent-to-own shop, it becomes a normal situation.”

He continues by calling out the financial disparity between white communities and communities of color, citing the large gap in interest rates as a possible cause:

”And so what happens is if one community is paying no more than 15% to borrow money and the other community is paying 300-400% minimum, the community will never get out of poverty,” Corbett states.

Con 5: They have access to your bank account

no credit check payday loans Lebanon TN

To gain access to a fast cash advance, borrowers are often required to grant the payday loan lender access to their bank account. While setting up direct deposit to make bill and loan payments is pretty common now, this account access works a little differently.

« Some payday lenders attempt to recover their money by taking what they’re owed directly from borrowers’ checking accounts, which borrowers grant access to as a condition of the loan. But unexpected withdrawals from the [payday loan] lender can rack up pricey overdraft fees and damage credit scores, » CNBC reports.

Many payday lenders have you write a postdated check – meaning in this case, a check that is dated to be cashed after your next payday – when you get the loan. If you don’t have enough money in your account when they cash the check, you could face expensive overdraft fees and bounced check fees (also known as insufficient funds) from your bank as well as returned or failed payment fees from the lender.

These extra fees add to the already high costs charged by payday lenders. If you find yourself in this situation, contact your bank immediately to discuss your options for protecting your account.

Con 6: Payday lenders can sue you for the money you owe

Just like other lenders, if you fail to pay a payday lender for long enough, they can take you to court and try to get a judgment against you for failure to repay a debt. If a judgment is ordered, you could face wage garnishment, imprisonment or other consequences.

Keep in mind, however, that legal battles are expensive. In the case of small-dollar loans, it’s not always worth the time and money involved for the lender to sue. However, some companies or debt collectors will threaten to sue or threaten wage garnishment to scare you into paying them back quickly.