Avoid Payday Lenders Like the Plague

Payday loans are one of the worst, if not the worst way to help yourself get out of financial trouble. As the name suggests a payday lender advances you money that is based on your paycheck. Basically, you write a check to the lender for a certain amount plus a fee. You typically write this check in advance so that when the cash it, you will have just received your paycheck and it will not bounce. These types of loans typically carry very high interest rates with them. For example, if your paycheck is typically $1000 every two weeks and you need to borrow money now, the payday lender may ask you to write them a check for $1000 dated in two weeks and then they will give you $800. The other $200 is a fee or interest rate. This is a whopping 586% for the two weeks!

Typically, most payday lenders encourage people to keep ‘rolling over’ their loans from week to week. They set up the loans so that they are difficult to pay off and force the borrower to ‘rollover’ the loan with more fees and interest charges. These types of payday lenders were a big problem for the military in the past few years. For example in Oceanside, California (where Marine base Camp Pendleton is) there are 22 payday lenders. That is 17 more than there should be based on the population of the city. These types of lenders prey on the innocent and those who may not know better financially. They prey on the military because most of those individuals are very young and inexperienced with money and therefore may not know better. Payday lenders are also prominant in minority neighborhoods throughout the United States.

Here is a great video with a former payday lending manager. She talks about how they took advantage of people and some of the tricks of the trade.

Have any of you or your relatives had experience with payday lenders?

5 thoughts on “Avoid Payday Lenders Like the Plague

  1. Alex Bender

    A big problem I see down south is the similar “Title Pawn” loan sharks. They are prolific in poor areas and target those with little knowledge of finances and interest rates. Great blog by the way!

  2. Adam

    It’s 586% because you are only borrowing the money for two weeks. For example, if it was a 1 year loan the rate would be 22% (like many credit cards), but since you are only borrowing the money for two weeks, it really magnifies the percentage amount of interest you are paying. I hope that makes it easier to understand. There is some calculator work that I had to do, but I didn’t think you wanted to learn about that!

  3. brista

    In Ohio, they recently voted in a proposition to curb some of the payday lenders. There will be a cap on how much interest can be charged, borrowers will have at least 30 days to pay back the loan, etc. Nothing in the proposition banned payday lending or made it illegal.

    You should have seen some of the pro-payday campaign ads…they’d show a “workin’ man” in his farm clothes on a dirt road. “If this here truck broke down on me before payday,” he said, tapping his hand on the worn pickup, “and I needed money, why, it ought to be my right as an American to visit a payday lender! It’s my money, isn’t it? Vote no on proposition (whatever-number). It’s about choices!”

    There’s a similar one with a suburban mom wrangling a couple kids in the kitchen, sticking a band-aid on one of them. “If Johnny gets sick before payday,” she started as the kid hopped off the kitchen counter and went to go play, “I might need to borrow some money to make sure he gets the treatment he needs. But some people don’t think I should be able to do that…” etc., etc.

    Anyway, it passed.

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