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?