Never Borrow More Than Fifteen Percent

Posted by on Jul 29, 2006 in Tips

Never Borrow More Than Fifteen Percent

Many state laws limit maximum payday loan amount to 25% of a your gross pay. One state even limits the amount to 15% of your income.

Internet lenders based in other states (or offshore countries), of course, may not respect such limitations.

Although unethical payday lenders may offer to loan you over 25% of your income , there are good reasons to never borrow more than 15% of your gross pay…

Lets assume:

  • your income is $1200 per month
  • you take out a $300 payday loan (25% of your income)
  • the payday lender’s fee is $30 per $100 (expensive for a payday loan)
  • total interest is $90 (3 x $30)
  • the lender will deduct $390 from your next paycheck ($300 principle + $90 interest)

If you repay your loan with interest on time, the lender will deduct $390 from your take home pay:

$1200 (your take home pay) – $390 (amount you owe lender) = $810

You will have to survive on $810 for an entire month. That’s under 70% of your current income. Will you be able to pay rent, bills, transportation and other expenses on less than 70%?

If you are living paycheck to paycheck now, you will have a lot of trouble surviving the month after, even when you borrow only 25% of your monthly pay.

You will have a much better chance at repaying the loan and surviving the month after if you only borrow no more than 15% of your pay.

In other words, if you are earning $1200 per month, you should not borrow more than $180. If you are earning $2000 per month, you should not borrow more that $300.

Unethical payday lenders do not care if you can’t repay the loan. In fact, lenders make more money if you can’t repay the loan on time.

Every time you extend the loan by paying only the interest, lender profits multiply at your expense. That is why many lenders have a policy of no partial payments. Putting you on the debt treadmill may have disastrous consequences for you but it is very profitable for them.

Before taking out an expensive loan, be sure to consider payday loan alternatives and never borrow more than you can pay back on your next paycheck.

Recent Posts:

Random Posts:

GD Star Rating
a WordPress rating system