PAYDAY LOANS ARE BAD.  Period.

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If I really wanted to, I wouldn’t mind having a five word post about payday lending, if I was sure those five words would deter someone from getting one of these loans.  If it were that easy, then payday lending wouldn’t generate so much money, which is in the BILLIONS (with a “B”) of dollars each year!

For those who don’t what a Payday loan is, it’s basically a loan that is granted with the condition the loan will be paid by on your next payday.  Sometimes it’s called a “payday advance”.  They are very easy to obtain and generally do not require any credit check.  It sounds simple enough…but the problem is the ridiculously high interest rates payday lenders charge you.  If you are given a payday advance of, say, $200.00, the payday lender may require you to pay back $230.00 within two weeks (when you receive your next paycheck).  An extra $30.00 doesn’t sound like much, but when you do the math, the annual percentage rate is CRAZY:

$30 charge on $200.00:  30/200 = 15%

15% x 26 (number of bi-weekly pay periods per year) = 390% Annual Percentage Rate (APR)!!!!

This is a amazingly high number for a simple advance on your own money!  In addition, three out of every four payday loans come from repeat borrowers.  So, on a “per-borrower” basis, the APR is even higher!

As I had mentioned in my post about credit, the biggest issue I have is when companies take advantage of lower income families who are trying to make ends meet.  These tend to be the people who pay the majority of overdraft fees at a typical bank, as well as these high payday lending fees.  I’m sure someone who may doing ok for themselves wouldn’t want to pay a 400% interest rate on ANYTHING.  So what makes it ok to have someone (whom you know is already having a difficult time financially) pay these insanely high interest rates???  Simply replace the word “payday” with “predatory” and that describes in a nutshell what these types of loans are.

What’s even more unfortunate is that this industry isn’t very well regulated in my opinion.  Yes, there are some states that have banned payday lending (North Carolina being one of them), but that still doesn’t stop a payday lender from doing business in that state.  I remember about 10 years ago when payday lenders set up shop in Raleigh, NC.  They popped up EVERYWHERE, and very quickly.  The Attorney General has worked hard to combat these lenders, and today you won’t see one payday lender within the state…well…at least not physically.

What payday lenders are doing now is hitting the internet to generate business, regardless of the state.  So you’ll still have direct deposits and withdrawals from North Carolina bank accounts, all from online payday lenders.  Same high interest rates, same predatory practices.  I’m sure you’ve also seen or heard the TV or radio commercials about getting a payday advance.  I notice the commercials particularly on stations that have a predominantly black audience all the time.  And yes, a lot of black wealth has faded away from existence since the recession, so this demographic seems to be a primary target for payday lenders…and a smart one (from their point of view).

If you need money until your next paycheck, by all means, consider all other avenues before you go to a payday lender.  You can VERY easily become a repeat borrower of payday loans, and get caught up in a deep hole that will make your situation even more difficult than before you had a payday loan.  Limit your spending on junk food or eating out.  Cut or look for ways to save money on some of your bills, like cable or the home phone.  Ask friends or family to help.  Pick up a part-time job.  Do what you have to do to better your situation.  But do NOT go the payday lending route.  You don’t have to thank me now, later, or at all.  I just want you to be smart about what you need to do to become financially stable.