Stay Away From Here!

May 22, 2014 by

Study this image closely.

payday loans

Only the desperate, the foolish, and the ignorant enter this place. Oh, and employees.

This is a highly recognizable “payday lender“. It’s got all the telltale indicators: Windows covered by posters so embarrassed customers can avoid being recognized from outside; lots of repetition of the word “cash” and dollar signs (this company has even trademarked “cash money”—that’s actually the name of the place); lots of bold color and exclamation points. The branding screams: walk in broke, walk out feeling like a big shot with wads of currency in your pocket!

The Small Print

More challenging to detect is the cost of cash handed out at places like this. See the sign that boasts $300 LOAN FOR $20″? Here are the details, from the company’s website:

payday loan terms

The fine print.

Okay—remember these numbers:

Cost of borrowing = $6.67

for 14 days

for each $100 “advanced” (that means loaned)

Let’s Go to the Calculator!

What’s the APR (Annual Percentage Rate) on the advertised $300 loan?

365.25 days per year ÷ 14-day loan term = 26.1 loan periods per year

26.1 loan periods per year x $6.67 cost per loan period for each $100 borrowed = $522.26 cost per year

APR = $522.26 cost ÷ $300 loan principal = 174.1%

Cash Money calculates a 173.8% APR; the difference is probably rounding somewhere.

But Here’s What Really Happens

But the “low,” introductory APR the big window sign advertises, whether my 174.1% or Cash Money’s 173.8%, is only for new customers, and is good only on the first loan. That means the first 14 days the $300 is outstanding. See, for payday lenders, two weeks is a loan term. The large majority of payday lender customers do not repay their loan after the first 14-day loan term. Instead, they roll it over, and pay another fee. That’s how the cycle begins, and that’s why Cash Money® is offering an introductory special: to suck you in so that then the real gouging can commence!

After the first 14-day loan period the fee is $23 per $100 loaned. That’s $69 every two weeks for the privilege of borrowing $300. Cash Money® says this translates to an APR of 599.6%. Using the same method as above, I get an APR of 600.3%. Regardless of whose math is a bit flawed, the borrower is getting screwed!

The Moral of the Story

You know how tough it is to get ahead, save for retirement, and stay on top of your bills without borrowing money at 600%. Don’t make it tougher. STAY AWAY FROM PAYDAY LENDERS! And keep your friends and family away too!

Further related reading:

Reverse Bank Robbery

Installment Loan Money Trap

Wonga: So Wrong-a

Need Cash? Pawn Something

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  • This type of lenders looks fishy. If something is too good to be true, it is most likely not true. We definitely have to calculate the possible total costs of loan payment before we decide to take out any loans.

  • Travis Pizel

    I’m not proud to say that at the height of our overspending and racking up debt period I fell into this trap. I walked out of the place in less than 15 minutes with $1000 in my hand. It seemed like such a great idea……until two weeks later the payment was due. Then I realized full well what I had done. Pay the $1000 + the fees and interest, then take our a new $1000 loan. Over and over every two weeks. One thing that the experience did teach me was how foolish it is to pay interest just so you can overspend. I watched myself just hand money to someone for no reason every two weeks.

    • But you should be proud Travis that you’ve traveled the long hard road to work your way out of your debts by paying them off, through much sacrifice.

    • Ouch, Travis. I suppose what they say is true about having to hit rock bottom before changing your ways, and I consider using a payday lender as hitting rock bottom. Thanks for sharing.

  • Just this morning we drove by one of these places – which also cash checks – and there were about 5 people waiting for the place to open. My fiancee asked me “Why don’t they cash their checks at a bank?” The thing is that a lot of people are living paycheck to paycheck and can’t even afford to wait three days for their checks to clear and these businesses love to pray on people struggling.

    I never borrowed money from one of these places but I did cash some checks there when I was struggling with debt. I’m glad I’m taking care of my finances now and don’t have to struggle anymore.

    • Unfortunately banks will not do business with some folks. I’m not blaming the banks, but society does need an alternative for these people besides payday lenders. The U.S. Postal Service is considering competing against payday lenders since paper mail is just about dead. The City of San Francisco’s Office of Financial Empowerment runs a program called Payday Plus as an alternative to commercial payday lenders. It’s a neat idea, check it out: http://sfofe.org/programs/payday-plus

      • You can also cash a check at the bank that issued the check. They will still take a fee but I’m guessing it’s less than those places mentioned above. That is, if you can find out what bank it is and actually find a local branch.

  • I helped a friend with their finances recently and they had several cash advance loans. Payday loans are insane. The interest rates on some of their loans were worse than a bad credit card. Stay away!

    • And payday loans are like most traps: very easy to get into, but for most tough to get out of.

  • An interesting thing about payday lenders is that many set up shop just outside military bases. I guess that shows that many in the military are not very financially savvy. I know the military is trying to better educate its members on finances, but there is apparently a lot of work still to do. And yes, I am a veteran.

    • That’s curious about the connection with military bases. I wonder if it’s because many who join the military are from lower socio-economic classes and so may be accustomed to using or seeing their family use payday lenders.

  • It is absolutely insane the amount of interest they charge at payday loan places. It makes me feel sick just thinking about it. I had a family friend who got caught in a payday loan trap and it took her forever to get out of it. Bad news!

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