Minnesotans for Fair Lending released a video today featuring real Minnesotans whose lives have been negatively affected by the payday loans that they’ve taken out.
Payday loans are small-dollar, high-interest loans requiring full payback on the borrower’s next payday. They typically carry triple-digit annual interest rates, are due in full on a borrower’s next payday, require direct access to a borrower’s bank account, and are made with little or no regard for a borrower’s ability to repay the loan. Because of these features, borrowers often cannot both repay the payday loan and meet their other obligations without having to quickly re-borrow. This is the debt trap.
The stories and voices of the people in this video underscore the problem of the debt trap.
Rhonda took out a small payday loan to pay off her mortgage, but found herself still owing the loan one year later – and still making payments on it twice a month. “[I] kept on extending the loan and extending the loan and never paying it down… with not having the money to pay it back to them, it’s now hurting me.”
LeAndra shared her experience with payday loans this way: “So you go get a loan to help pay off something…but it’s really just gonna keep you in the hole that you’re in. Because if you want a payday loan, it’s just another bill, so you’re actually just picking up another cycle of trying to repay.”
The average borrower in Minnesota, due to the debt trap, takes out 10 payday loans per year. Given the average size ($380) and average APR (273%) of a Minnesota payday loan, the typical borrower will pay back more than the original amount of the loan in fees alone in under six months, while still owing the principal.
Reneé, who credits losing her home due to the payday lending debt trap, said, “You’re always gonna owe it – and it’s gonna make you that much farther behind every month.”
Minnesotans for Fair Lending is a coalition of over 30 organizations advocating for payday lending reform this legislative session.
“[Payday lending] doesn’t make sense,” Tasha said. “It’s like a cycle of poverty.”
Reneé concurred. “It’s not worth the risk.”