Payday Loans and the Wealth Gap

Payday loans targeted regions where redlining forced many Blacks to reside, widening the Racial Wealth Gap.

Cash Advances – What Are They?

Payday loans are short-term unsecured loans with high-interest rates. A lender provides a short-term unsecured loan repaid on the borrower’s next paycheck. Verification of work or income is standard (via pay stubs and bank statements).

Borrowers often go to a payday loan establishment and in a Bad Credit OK site get modest cash loans paid back with their next paycheck. The borrower sends the lender a postdated check for the loan amount plus costs. The borrower must return to the business to repay the loan in person. The lender may redeem the bill if the borrower does not pay in person.

In an essay titled “Fraud and Abuse Online: Harmful Practices in Internet Payday Lending,” the author states that “payday loans do not damage equally.” Payday loans disproportionately affect African Americans. Black Americans make up around 13% of the US population, but 23% of all storefront payday loans.”

An unbanked or underbanked household is more likely to utilize a payday loan than a bank account. In America, families that use payday loans are more likely to be Black or Hispanic, recent immigrants, or uneducated. These people have the worst time getting regular, low-interest credit. Payday lenders demand more excellent loan rates than established banks, eroding low-income and Black communities’ assets.

Connecting with The Student Money Management Center (SMMC) is one method to empower yourself and others in your community against Payday Loans. Establishing an Emergency Savings Fund, for example, might help you prepare for unexpected costs or job loss. In other terms, an ESF protects your finances.

Payday Loans are heroes to individuals who are hopeless and needy. In general, payday lenders charge a fee of $10 for every $100 loaned, according to the CFPB. This cost is usually between $10–30. For example, a $200 loan with a $30 charge equals a 391.07% annual interest rate. To avoid late penalties or a rollover (plus another cost), you should pay it back as soon as possible.

SMMC Can Help

Author and personal finance blogger Christine Luken learned this the hard way. “I had two difficulties if I had an unexpected auto repair or vet bill,” she explains. Unlike payday loans, your ESF is your get out of debt card, your I lost my job responsibilities, your vehicle broke down repairman…you get the idea.

Let the SMMC help you establish your Emergency Savings Fund. Did you know that saving $20 every week may save you over $1,000 in a year? First, we need to know your monthly income and spending. Set a savings target of $1,000 or more. We can help you set goals and design a strategy to achieve them.

You may prevent future generations from being hungry by taking charge of your finances now. Payday loans are meant to catch you in a financial crisis, not your savings.

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