Doreen was in trouble. She needed $250 to pay her rent or her landlord was going to evict her. Doreen’s paycheck would not arrive until the following week. Desperate to keep her home, Doreen applied for a payday loan online. She figured she would pay off the payday loan when she received her paycheck the following week. She was approved for a $250 loan from an online company and agreed to the proposed loan without examining the fine print.
A second payday loan company deposited $250 into her account. She used the second $250 for gas and food to last until her payday. When her payday hit, she checked her account balance and found out she was in trouble. The second payday loan company had debited her account at 11:59 pm on the day before her automatic deposit from work which was credited to her account at 12:01. Those two minutes caused her account to be overdrawn and the bank charged her a $35 over the limit fee. If that was not bad enough, the payday loan company charged $67 for interest and then made a second withdrawal from her account for $25 towards the $250 principal. This meant a second overdraft fee of $35 was charged by the bank. Her $250 payday loan had cost her $187 and she still owed $225 principal to the second payday loan company as well as $250 plus interest to the first company.
The original payday loan company had called the day before her payday to remind her that her payment would be due by closing time the next day. She did not have enough in her account to cover the full amount of the first payday loan and pay it off. The first payday loan company was very understanding. They arraigned for her to make an interest-only payment for that period, along with applicable fees, came to $58.
Doreen now had the additional problem of two payday loans plus her rent and all of her other bills to contend with. It was the beginning of a nightmare that would take her 8 months to completely pay off. Every time her automatic deposit was scheduled, the second payday loan company would be there ahead of it, causing her to overdraft and incur the $70 in fees from the bank. This continued even after she contacted the company and literally begged them to change the time of the withdrawal to stop incurring the overdrafts. The company representatives all said the same thing, “It is in our system, we cannot change it.” And Doreen was too mortified to try to get help from family members. “I screwed up. I will pay for it.”
In all, between the bank overdraft fees, interest, and payday loan fees, she ended up paying over $3,196 for two $250 payday loans during the course of an 8 month period of time. “I will never go to a payday loan company again.”
If you are considering taking out a payday loan, be sure to read all fine print. If you apply online, monitor your bank account to be sure an unscrupulous payday loan company is not taking advantage of your situation. If you find a second company has placed funds in your account, contact them and cancel immediately. Your bank account records will have the payday loan company’s phone number next to the deposit and bank officials can help you to send the money back to the payday loan company. Another thing you can do to protect yourself is to check with the Better Business Bureau to find a reputable payday loan company rather than applying online. Be sure to check the interest rates, find out what all fees will be and be prepared to pay it off on your payday to keep yourself out of a nightmare.
Doreen learned a valuable lesson in money management. Yes, a payday loan company can get you out of a tight spot and provide you with a temporary quick fix. However, they can also be the beginning to a financial nightmare.