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Before you sign up with a Payday Loan, read this first

Payday Loans and the Cycle of Debt

Payday loans must be repaid in a single “balloon” payment at the end of a very short loan term. Because this payment is usually due in less than 30 days, this single payment can lead to significant problems for the borrower. If borrowers cannot afford to repay a payday loan in full when it comes due, they are left with no option but to refinance that loan. This results in what is commonly known as the “cycle of debt,” in which the entire balance of a loan is refinanced multiple times, triggering additional finance charges.

“… the biggest problem with traditional payday loans is not necessarily the underlying price of a single loan, but the structure. By requiring repayment in full after only two or four weeks, payday loans can cause a toxic cycle of debt at an ultimate cost that far outweighs the original loan amount.” Jennifer Tescher Director of the Center of Financial Services Innovation (CFSI)