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Payday Loan / Cash Advance Places
by
Keith Rawlinson
Volunteer Budget Counselor
I'm
starting to see them everywhere--payday loan and cash advance places.
I see them in television commercials regularly: the
financially strapped, broke couple whose car breaks down and they have
no money for the repairs. So, they go to the payday loan
place, write them a check to be held until next payday, and walk out
with a loan in the amount of the check minus the fees for borrowing the
money. The commercials even say they are there to help when
people are in trouble and need cash fast. The commercials
make it sound like this is what smart people do when they are in
financial trouble; in fact, one payday loan place even has the word
'smart' in their name! Are these places really there to help?
Is it really a smart way to deal with financial troubles?
Absolutely not!
An 800% return
on the money...for them anyway.
The first reason
not to use these places is the outrageous fees and interest they charge
when they lend you money. In many cases, they don't even call
a lot of what they charge 'interest' since that puts them under all
kinds of legal constraints. They call it fees. They
give the fees various names, but they are still fees. When
you add up all of the 'fees' plus any interest they may be charging,
you are paying the equivalent of somewhere around 400% interest to
borrow this money! If you are late with repayment, they add
in a bunch more 'fees' that brings what you are paying up to the
equivalent of about 800% interest or higher!
Just
for a quick, made-up example, let's say you borrow $500. The
fees only add up to 10% of what you are borrowing which comes to $50 in
fees. So, you write them a check for $550 which they
hold for one week (until your next payday) then cash the
check to repay the loan. It's only 10% which is only $50 and
that doesn't sound like a whole lot when you need the money to get out
of trouble. But wait, that 10% was to borrow the money for
only one week. If you figure out the annual percentage rate
on that, you are paying over 500% annual interest! That's
like going to the bank and taking out a loan with a 500% interest rate.
Or, it's like putting a $500 charge on a credit card that
charges
500% interest. Would you do that? I hope not.
But that's what you're doing when you take out a payday type
loan. By the way, to be perfectly honest, it is technically
illegal to even write a check when you know there are no funds to cover
it; but that is exactly what these places are asking you to do.
So,
are they really there to help you? No way! They are
doing this because they get a 400 to 800 percent return or more on the money
they lend
out.
Get money
now...repay later...with
what?
Another big problem with these payday loans is
this: if you are so financially stressed, so broke that you
need to get a payday loan in the first place, where is the money going
to come from to repay the loan a week or a month from now?
They tell you that it comes from your next paycheck, but, if
you are broke and financially strapped, you are going to need every
penny from your next paycheck. If you didn't need all of your
paycheck to meet expenses and payments, then you would have money left
over from previous paychecks and you wouldn't need a payday loan to
begin with. You may feel like you're solving a money problem
now, but it will be a much bigger money problem when the loan comes due
and you can't pay it. And as soon as you can't pay the loan
back, they add in a whole lot more fees and now you owe even more money
that you have no way to repay. I've even counseled people who
have done exactly that, then ran out and got another payday loan to pay
off the first one. They haven't really paid it off, they just
moved
it to another payday loan place. Then, in the meanwhile,
another financial emergency comes up and they borrow that from the
payday loan place as well. Now they have two loans they can't
repay and are in even more trouble. You think you're in
financial trouble now, just wait and see what happens when you get
involved with these payday loan places!
Predator
and prey.
A predator is an animal that eats another
animal alive. The prey is the animal that gets eaten.
In my opinion, what these payday loan places do is predatory
lending. Predatory lending is when a lender takes advantage
of someone who is desperate and ignorant enough to borrow sums of money
at very, very high interest rates. Some predatory lenders
even try to get you into so much debt that you can never repay it
completely, you just keep sending them payments every month for the
rest of your life. The payday loan places are the predator...you
are the prey.
Think about it, where do
you generally see these payday loan places? Do you see them
in the upper class neighborhoods? Do you see them next door
to expensive boutiques in the high-end shopping district? Do
you see them where all the rich people live? No, you don't.
You see them in the poor neighborhoods. You see
them near the liquor stores. You see them near the pawn
shops. You see them anywhere that broke people hang out.
Why? Because these payday loan places know that
anyone with any money and any financial smarts is not going to be
desperate and ignorant enough to use payday loan places.
Now
understand that ignorant does not mean stupid. Ignorant
simply means that someone doesn't know much about it. I
counsel many very intelligent people who are ignorant when it comes to
handling money. These payday loan places don't care how smart
you are, they care how desperate, broke and ignorant about money you
are.
Fine, so what's the
answer?
In
counseling, I'm not one to tell people what they should not
be doing
without telling them what they should
be doing instead. So,
if you aren't supposed to use payday loan places when you have a
financial emergency, what are you supposed to do?
Well, if you are using payday loan places, then one thing is
for sure: you need to read my article entitled You Need Savings.
If you really think about it, most people borrowing from
these payday loan places start by borrowing somewhere around $500.
Well, if you had $500 saved up for such emergencies, you wouldn't
even need a loan would you?
My advice to
you.
If
you are using payday loans, or considering using them, or need to get
them paid off and get rid of them, then here's my advice to you.
Read all of my numbered articles.
If you are really serious about eliminating financial stress,
eliminating debt, and getting to the point that you never need a payday
loan again, then you really need to take the time to read all of those
numbered articles. Read them in order starting with The Secret To Becoming Wealthy.
Take it seriously and really be determined to follow the
advice
and make the rest of your financial life much, much better.
You
can do it. I have and so have thousands of other people. Start making yourself wealthy instead of making the payday loan places wealthy.
Please know that all of the thoughts, information,
suggestions
and techniques given on this site are nothing more than the author's
opinion on
the matter being addressed. Do further research before making
any decisions.
This article copyright © 2007 by Keith C. Rawlinson
(Eclecticsite.com). All rights reserved.
This article may be copied for non-profit use including newsletters,
bulletins, etc.
as long as you
first get written permission from the author and full credit is given
which includes the author's name
and the name of this website.
