The loan cycle can be triggered by a sudden expense, like an emergency visit to the doctor, a car repair or an electric bill that must be paid before power is disconnected. Once at the lender’s office, the cash-strapped borrower tacks on a little more debt to cover gas and groceries, and leaves behind a signed check postdated for the next payday.
But other expenses always come up, said Bobbie Lison, manager of the budget counseling program at Catholic Charities in Green Bay, Wis., so instead of paying off the loan, many borrowers end up rolling it over as the interest continues to accrue.
“They just get into the cycle of not being able to pay the premium and they’re just paying the interest,” Lison said. “Before you know it, they’re paying multiple payday loans.”
Some payday loan customers who end up in Lison’s office are dealing with as many as eight loans at one time, for amounts that range from $175 to $1,500. The interest, calculated on a yearly rate, averages between 400 and 800 percent.