What are payday loans?  Should you use them?  How can you get in trouble?  How can you get out?  These are questions that I answer in this video.

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Video Transcript

Hello, this is Darrell Castle. I’m an attorney licensed to practice law in the state of Tennessee and on this video, I’m talking about payday loans – payday loans as they exist here in Tennessee.

A payday loan is really just a small loan that you are obligated to repay on your next payday. The way it usually works is something like this –

You go down to a payday loan center and your borrow anywhere between 150 and 1,000 dollars based on what your next payday is. And usually you give the loan company a post-dated check dated for your next payday. If you don’t come in and pick up that check and make the payment on the loan, in full, plus interest, or whatever your arrangements are, then the loan company can deposit the check and you’ve got a bad check and bad check charges at your bank and things like that.

Now the other way it can work is you have a connection to your bank and the loan company. The loan company sends information to your bank, you sign off on it, and your check is direct-deposited into the bank and then the loan company simply deducts it from your checking account just like any other bill that you would have self-payed like that. I hope you never do that by the way, but that’s what a payday loan is.

So, you pay back the balance of the loan, plus interest and other charges at your next payday.

A payday loan is okay, I suppose, in some instances if you had a serious problem that came up, a one-time type of thing. Maybe one of your children got in trouble and $500 would solve the problem for you – that’s a one-time occurrence with keeping in mind that your next payday is going to be $500 light, then with that understanding, perhaps it’s something that would help you, but in general, it’s an indication that you’re going down a wrong road financially.

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It’s an indication that you’ve got something fundamentally wrong in your finances and if you go to a payday loan store and get like $300, just remember that on your next payday, you’re going to be $300 less likely to be able to make ends meet than you are now, so I would advise you to look for a permanent solution and to find something that is a permanent solution to your financial troubles, because what usually happens is you can’t make the payment when your payday comes so you go to a different payday loan company to get money to make a payment to the other one and then the next time, you have the same problem so that’s kind of like a death spiral financially.

Rather than going through that whole thing, you might want to consider some form of bankruptcy, like Chapter 7 or Chapter 13. Either one of those could solve your payday loan problems and solve them permanently if that’s what you choose to do.

So, once again, good luck out there folks and try to avoid that again if you can.