Dangers of payday loans ahead of holiday season

COLORADO SPRINGS, Colo. (KRDO) -- With one week to go, 62% of Americans do their shopping in the last seven days before Christmas, and 15% sell possessions to pay for those presents.

That means thousands more take out short term pay-day loans with high interest rates.

Payday loans are often a go-to for many families, especially this time of year.

"Check into Cash" on Academy Blvd. is just one of many short-term loan agencies in Colorado Springs. Many others are in lower income neighborhoods of the city.

According to lenders, loan amounts are capped at $500 and they're pretty easy to get. All you need is an active bank account, or prepaid card account, plus proof of income and a valid ID.

So what's the catch? UC-Boulder Associate Professor of Finance, Edward Van Wesep, says payday loans used to come with steep interest rate of more than 200%.

That's why last year, Colorado voted to eliminate all fees associated with payday loans as part of Proposition 111. Now, there's a flat interest rate of 36%.

If you're in a tight spot this time of year and considering a short-term payday loan, keep in mind that borrowing $300 dollars could turn into upwards of a $1,000-debt within six months.

Van Wesep says, as a researcher who has studied payday loans, he believes there are many new alternatives to short-term, high interest loans.

He says many companies give workers access to their pay at little to no cost, as it’s earned, and work with apps like PayActiv, which gives access to workers’ pay in real time.

For example, he says if you earn $75 a day, then you can withdraw that from your account, or pay bills directly from that account immediately.

He says apps like PayActiv have lowered the amount of loan agency storefronts in Colorado.