Millions of Americans fall into this trap. They run into financial issues and they run out to find the easiest, quickest loan(s) that they can get: the Payday Loan. It’s a painful, dreadful decision for most people, but many have no other choice.
Are PayDay loans worth it? No. Definitely not.
As Alice Gomstyn of ABC reported, some loans carry interest rates as high as 391 percent, while others have claimed to see rates as high as 600 percent. This isn’t just a bad loan, this is a loan that should be illegal. I believe this would be a perfect example of highway robbery, where the creditor is blatantly, outrageously overcharging people who fall into financial dire.
While movies tell tales of Mafia Loan Sharks beating up customers who forget to pay their bills, creating dramatic scenes, these Loan “sharks” are quite small, and possibly less vicious, than some Pay Day Loan companies. In the Complete Idiot’s Guide to The Mafia, the author stated:
“Mafia guys love loan sharking….Loan sharks make tremendous amounts of money….Most loan sharks charge customers anywhere from two to five points a week in interest on the unpaid balance of the loan. For example, if a customer borrowed $1,000 on a Friday at five points a week, the following Friday a would pay a $50 ‘vig’ to keep the cash another week or pay it off with a $1050 payment….Small loans, say $100, are usually six payment affairs in which a customer makes weekly payments of $20 to satisfy a $100 loan. Some loan sharks take $4 at the front end….His average rates are about 150 percent a year.”
These rates aren’t as bad as I had once believed. These rates make Pay Day Loan rates look rather…well, illegal. Insane. Ridiculous. I could go on, but you get the point.
The problem with these loans are that, much like the Mafia Loan Sharks, customers ‘forget to pay’. I worked for a Pay Day Loan company back in 2004. I hated it. I drove all around Fort Worth, Texas, trying to find old ladies, cancer patients or, in many cases, drug addicts and con-artists, trying to collect payment. I knocked on doors where people threatened my life. I sat down with an old lady who was dying of cancer. She wanted to make things right. I couldn’t take it. I quit.
In fact, the head of that company quit, too. He committed suicide months before. I guess the guilt overcame him.
With all of that being said, I’m sure there are much better rates that exist for this type of loan. However, I would only recommend this loan to people who absolutely, without a doubt, cannot find money elsewhere. Mom, Dad, Uncle, Old man 3 doors down…ask anyone else for money, if at all possible.
Payday loans have caused suicides on both ends of the loan, so that should tell you about the stress involved in this type of loan.
Where Can You Find Payday Loans?
Currently, there are 32 states within the U.S. where high-cost lending is authorized, and 18 states where it is prohibited. You can see the list here.
You can find ads galore online. In fact, you can apply for these loans online as well.
I urge you to act carefully when applying for these loans, especially if you live in a state that practices high-cost lending within this niche. These loans should be for people who absolutely cannot find cash anywhere else, including from relatives, selling old stuff on eBay, or quick jobs that pay cash (ie, mowing lawns, cleaning houses, babysitting, etc). This should be a last option, unless you can find a loan with great rates, which is possible for some people.