FRANKFORT, Ky. — A survey of low-income families in nine Kentucky counties showed that many turned to payday lenders because they couldn’t access traditional loans or other banking services.
That's just one of a series of findings released Monday as part of a Kentucky Youth Advocates 2008 survey of families and their financial needs.
The 2008 survey is a follow-up to a 2007 Kentucky Youth Advocates and Brookings Institution study that showed that a quarter of low-income Kentucky families lacked a bank account. Those families also used high-cost check cashing services — approximately 31 percent — compared to high income families — 5 percent.
Short-term lending services such as payday loans or check-cashing services provide immediate cash but often charge high interest rates. Some studies show that Kentuckians lose $131 million a year in fees to payday lenders.
The survey found that many families didn't realize how much interest they were paying on the loans. Some interest rates can be as much as 400 percent on an annual basis.
Some families said that they turned to payday lenders only after traditional banks refused to help because of their poor credit histories. Others said they had to take out multiple pay-day loans to pay off the first loan, keeping them in a cycle of debt.
But many of the participants said they were distrustful of all financial institutions because of all the fees associated with banking.
Read more at Kentucky.com