Future homeowner shares payday loan experience to help others

Habitat Omaha partners with individuals and families as they pursue homeownership. We have witnessed first-hand how predatory lending practices negatively impact housing stability for our most vulnerable neighbors. This is one individual’s story.

For the past ten years, *Sam took out a payday loan when needed. As a single parent, he couldn’t afford an unexpected expense. Sam would turn to a payday lender because it was easy and convenient. There wouldn’t be a deep credit check involved making the process fast. However, he soon realized it would lead to a debt cycle – taking months or even years to pay off.

A payday loan is a short-term, high-interest loan that is due on your next payday. If you can’t pay the loan back when the next payday comes, it could accrue an interest rate of more than 400% in Nebraska.

When money is tight, paying back the loan plus the interest is difficult. Many times, Sam took out a payday loan and had to take out a second one the following week in order to pay for the loan and interest already accrued.

“Every week, I had to ask for more to pay the huge interest,” Sam said. “It puts you in a really bad cycle.”

Sam was forced to adjust his budget and make cuts to pay back the lender. If another emergency comes up while trying to pay off a loan, it becomes harder to get out of that cycle of debt – causing savings to disappear and making homeownership even more challenging to achieve.

Last year, about 50,000 Nebraskans turned to payday lenders, according to the Omaha World-Herald. The average person took out 10 loans over the course of the year.

“Life happens,” Sam said.

His most recent experience was in February when his vehicle broke down. Sam needed it to get to work and to take his child to school.

The Omaha Metro Transit system was an option, but he knew it would be logistically impossible to go to work and also drop off and pick up his child on time. He decided to turn to another lender for a $500 loan. The employee realized Sam was a single parent and decided to tell him about an installment plan.

“The worker was being nice,” Sam said. “It was the first time I heard about it. If you don’t ask about installments, then they don’t tell you about that option because the lenders want the fees.”

Sam also warns about online payday loans. He requested a $300 loan and ended up paying a total of $1,000. It took Sam six months to be able to pay back the interest.

His experience with payday loans has taught Sam many valuable lessons. He tries to advise against it when others are considering a payday loan.

“Use it as an ultimate, ultimate, ultimate, last resort,” Sam said. “If you have any family members or friends, ask them for help first. If you need to pay a bill, reach out and ask if they have a payment plan available. Reach out to others and explain your situation. I’ve learned that many places are willing to work with you.”

Sam suggests looking for alternate options before going to a payday lender. If an individual is considering taking out a payday loan to pay their rent, Sam recommends explaining their situation and asking if they can make a partial payment and receive an extension.

“A late fee is nothing compared to a payday loan,” Sam said. “And it’s better than not paying rent at all.”

If someone does decide to turn to a payday lender, Sam advises them to do research beforehand:

  • Call different locations
  • Ask about the interest fees
  • Ask if they offer payment options, such as installments

“Use a payday loan as a last-minute resort,” Sam said. “Make sure to factor the loan and interest into your budget so you can get out of that cycle as quickly as possible.”

It has been difficult for Sam to pay off his payday loans and work towards financial security. His experience has taught him to look for alternative solutions. Saving up hasn’t been easy, but Sam has persisted, budgeted and is now weeks away from becoming a first-time homeowner.

“I don’t plan to use a payday lender anymore and hope I don’t have to,” Sam said. “I also hope my experience can help somebody else.”

*At Habitat Omaha we respect the privacy of our program participants and clients. While their story is true, names and any identifying information may have been changed to protect their privacy.

For Nebraska families, a payday loan can be devastating, trapping them in a crippling cycle of debt that may force them to keep re-borrowing. We can end this predatory payday lending cycle when we cast our ballots this November.