New House Bill In Michigan Could Allow Payday Lenders To Give Out Loans Without Any Loan Terms
31 Dec 2019
Approx Reading time: 2 minutes
- A new bill is currently under consideration by lawmakers in Michigan that could potentially place many people living in the state under great financial turmoil over the long term.
- The bill would allow payday lenders to lend amounts as high as $2,500 for an indefinite period of time.
- According to critics, payday loans carry a very high-interest rate and are usually sought by those who are already financially vulnerable, and this can place many people at risk of bankruptcy.
The new House Bill Number 5097, if passed, would give a free hand to all payday lenders operating within the state of Michigan to give out loans as high as $2,500 without any limit on the loan term.
According to Sandra Pearson, who works for an organization called Habitat for Humanity in the capacity of President and CEO, payday loan borrowers don’t always have a clear understanding of the financial burden they would have to bear considering the high-interest rate charged on payday loans.
Pearson’s company employs financial counselors/educators that help families look for the best source of credit funding to meet the necessary expenditure. According to her, 30% of all the people who approach her company for help are currently stuck in payday loans, and the company is working with them to get them out of this trap.
According to Pearson, considering the high rate associated with payday loans, borrowers end up paying up to $7,000 over a two year period for a $2,500 loan. The expensive nature of payday loans is the reason why they are banned in a few states, including Montana, Georgia, and Colorado.
Most payday borrowers agree to get payday loans to meet emergency expenditure, however, the high-interest expense creates a vicious cycle of debt for them as they end up paying only the interest and a very small part of the principle, if any at all, with every paycheque. By the end of the loan term, borrowers end up paying two- or three-fold more than the amount they had initially borrowed.
Oftentimes, borrowers default on payday loans, and many times this leads them to file for bankruptcy. According to Pearson, the best approach in dire circumstances should be to approach her company or any other support service to fund emergency expenses.