I noticed that a payday loan store moved into my neighborhood recently, then I looked around and realized there are several in my area.
This made me wonder... how profitable are these payday loan places, that they are popping up on every street corner? I've heard that payday loans charge high interest rates, but I had never really researched this info before now.
Here's what I found out...
First, if you're not familiar with payday loans, basically, they are short-term loans, usually in small amounts. Typically, you write a check for the amount of the loan plus fees, and the lender cashes the check on a specified date, usually one to four weeks later.
Here's an example: you need $100 to pay your bills so you borrow $100 from a payday loan company. You write a check for $115 and leave it with the lender, to be cashed in two weeks. Your fee for that loan is $15 - that is an annual percentage rate (APR) of 391%.
Although the Truth in Lending Act requires lenders to disclose the finance charge, including the APR, many consumers do not understand the true cost of a payday loan. To continue the example above, let's assume that you can't pay the $115 when it comes due. The lender allows you to roll the loan over for another two weeks, but you pay another fee each time you do this. If you rollover the loan in the example above three times, your total finance charges would be $60, for a $100 loan. That equates to an APR of more than 1000%!
As you can see from the example this a very costly way to borrow, even when compared to high interest credit cards. If you find yourself in a cash bind, here are some alternatives to payday loans to consider: a personal loan from a bank or credit union, a personal loan from family or friends, a cash advance against your credit card, a cash advance from your employer, etc.
Beware the high cost of payday loans
December 13th, 2006 at 05:05 am
December 13th, 2006 at 05:00 pm 1166029239
My sister worked for one of those places and it made me sick. They were just shut down though. We had many a debate about the ethics of charging close to 400% interest. She had no sympathy. Funny now that she is out of work and in those people's shoes. But mommy and daddy will bail her out, so she will still have no sympathy.
Ironic how they get shut down for a completely different reason though. The government doesn't mind the interest rates though stuff like that is illegal anywhere else.
December 13th, 2006 at 05:04 pm 1166029442
December 13th, 2006 at 08:09 pm 1166040573
Sigh.
I yelled and yelled. Tried to explain why it was so horrid. I even let him borrow money from me to pay it off sooner.
I don't charge interest ... that's the nicest way to look at it.
December 13th, 2006 at 08:59 pm 1166043591
December 13th, 2006 at 10:12 pm 1166047930
Congress passes a law about these places. I've heard people say that is nothing more than legalized loan sharking. I believe this!
Juanita
Virginia
December 13th, 2006 at 10:12 pm 1166047958
October 9th, 2010 at 08:08 pm 1286651339
This was a very interesting read with an abundance
of information within! Very good work by the author!
Thank you for sharing this with us!