Payday loans, if not thought about carefully can get you in trouble. The interest rate alone, charged on these loans should be against the law in every state. I have never heard of a payday loan where the interest rate was any lower than 200% except for military personnel. While 200% is the lowest I have heard of, the rates are usually between 400%-800% in most cases. This means that if you are not military personnel and you get a payday loan for $200.00 at 200%, your repayment will be $240.00 plus other fees. Now imagine $200.00 at 400%-800%.
I had a friend that had bad credit, and needed money for emergency car repairs. We will say his name is Matthew. Matthew went to a payday loan establishment, and submitted an application for $500.00. He was told that his interest rate was going to be 2,154%. Matthew asked, ” Isn’t that against the law.” The customer service representative proceeded to inform Matthew that there is no cap on how much interest he could be charged, and there were other fees of $75.00 he would incur in addition to the interest. The total amount Matthew would have had to pay back would have been $682.70. The $682.70 was the original amount borrowed plus interest and fees. However that is not the worst part. The worst part is that they asked him when his next two pay dates were. He told them they were August 1st and 15th. Matthew was applying for the loan on July 27th. He was then informed that he would have to pay the $682.70 on the first of August. This made no sense for Matthew to borrow this money, and three days later have to pay it back with 2,154% interest and other fees. The representative then informed him that if he wanted to wait and pay it later on August 15th, that would increase the amount of the fees to $150.00, and the interest would go from being $107.70 to $215.40. The total repayment if he waited until August 15 to repay would have been $865.40.
Needless to say that Matthew just walked away. He waited until August 1st to get his car repairs done, took the bus to work everyday in between July 27th and August 1st, and paid for the repairs out of his own paycheck. Matthew came out cheaper in the long run. The whole encounter with the payday loan establishment took about 30 minutes. Some would say that the 30 minutes was a waste of time, but at least Matthew knew to get all the information he needed, and to read the fine print before signing anything. The payday loans are a ripoff for people with good credit. People with less than perfect credit need to really beware!