Payday Loans

Broke? Low on cash? Just stop by your local payday loan store for an easy hundred dollars or so. Then you can just sell your body and soul to the lending agency because you will forever be in their debt.

Even a low $10.00 per $100.00 borrowed for two weeks is equivalent to 260.71% annual interest. That's highway robbery! Yet that is about as low an interest rate that you'll find on payday loans, if you can even find that. Typically, interest rates are above 15% for two weeks (391% per annum) and can exceed 30% for two weeks.

I would like to see these institutions put out of business. Poor people are poor enough without having to mortgage the rest of their lives for a hundred dollars or so. At the very least, they should be regulated so that the customer has a chance to pay off his loan without major harm to his income.

I see (and know) people that make regular trips to the payday loan store. If they can't afford to pay their loan off this week they can pay the loan and then immediately take out another loan for the same amount, incurring another fee.

Let's say you borrow just $100.00. In two weeks you will owe $125.00, assuming a fee of 25%. You write out a check for $125.00 and the lender holds it, depositing it two weeks later (or you can by it back by going to the store in person). Two weeks roll by and your paltry paycheck will not carry you another two weeks if you pay off the loan. So you pay the loan off and borrow $100.00 more. You again write a check for $125.00. Two weeks later you are in the same situation and repeat the scenario. Your interest rate has now climbed to 75% (650% per annum) and each time you roll or flip your loan, it goes up another 25%. You are in an involutional financial spiral. Eventually, you will crash!

My first year in the Navy I received, after my allotments were taken out, 68 dollars a month. Even in 1964, $34.00 was hard to stretch out for two weeks. I was attending a service school and had to wear pressed uniforms to class. That required sending them out to the laundry. White uniforms seldom went past two wearings. In order to gain some extra money I would pawn my camera. That would give me another $10.00. I didn't want to lose that camera so I would hustle down to the pawn shop and buy it back for $15.00 and then turn around a week later and repeat the cycle. I soon realized that what I was doing was self-defeating. If I budgeted my money, cut back on expenditures, and set some money aside for emergencies I would not have to be in the pawn-payback-pawn cycle. I ended up having to sell the camera, but it was worth it in the long run.

Unfortunately, once a person gets trapped by the payday lender's snare of easy money, it is hard to get out of it. Estimates are that only about 1% of payday loans are paid off the first time with the borrower not flipping the loan.

Some states have passed restricting legislation but much more needs to be done. The industry is a parasite, sucking the life-blood out of those who can least afford to give it.