Once a borrower takes out a payday loan, he or she could quickly find themselves in a situation where they need multiple payday loans to cover expenses. Table 1 illustrates how a family could find themselves caught in the debt trap. A family earning $35,000 a year receives approximately $1,344 every two weeks in take home pay. After taking out a payday loan and repaying it with fees for a total of $365, the family has only $979 left to cover $1,107 in expenses.
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Still short, the family will either need to take out another payday loan or choose to skip paying certain bills. On average, borrowers take out eight payday loans per year. A 36 percent rate cap in Mississippi with 90 days for repayment would allow working families to avoid the debt trap.
