You’ve probably heard all the cautionary tales about payday loans. They come with fees and high interest rates. It’s easy to become dependent on them to get by.
However, when you’re short on money or an unexpected expense comes up and you’re not getting paid for another week, they can seem like an easy solution. Typically, you only need to provide proof of your income and have a bank account, and the payday lender will give you the amount of your upcoming paycheck.
Although the loan is supposed to be repaid on your payday, people usually are given the option toextend the loan or get another one. That comes with more fees. If you don’t pay the loan back in full and on time, high finance charges can kick in, with annual percentage rates (APR) in the triple digits. In Mississippi, the average APR for a $300 loan is over 520%.
If you end up defaulting on the loan, you could find yourself being hounded by collectors and see your credit score drop. Most of the money you owe on the loan(s) will be in fees and interest.
For all of these reasons, payday loans are illegal in a number of states. States like Mississippi that do allow them place legal restrictions on them. They’re referred to as “deferred and delayed deposits” under the Check Cashers Act.
Pressure by payday lenders has limited the restrictions placed by lawmakers. Mississippi law restricts loan terms and amounts and prohibits loan rollovers. However, people are allowed to take out more than one loan at a time.
A payday loan can come in handy if you have an emergency and don’t have any other way to get the money immediately, such as a credit card with a line of credit. However, it’s by no means a viable financial strategy. At the very least, it’s a highly costly one. If you’re finding yourself regularly unable to pay your bills, it’s wise to look into the full range of options, including filing for bankruptcy, to find the one that’s best for you in the long run.