LOAN SHARKS OF THE 21ST CENTURY. “Fast cash” (and faster debt) Payday Advance, Payday Loan; there are many different terms used for these “services.” The one thing they all have in common? They are out to Get Your Money. A lot of it.
Over a year, the cost of the loan would typically yield an APR of 500% or greater. Perhaps I’m just getting old, but in my day, we called a loan at 21% “Loan Sharking”. Now it’s not uncommon to see this interest rate on credit cards.
Per Wikipedia: “A loan shark is a person or body that offers illegal unsecured loans at high interest rates to individuals, often backed by blackmail or threats of violence. They provide credit to those who are not willing or are unable to obtain it from more respectable sources, usually because interest rates commensurate with the perceived risk are illegal.”
When you walk in to a payday advance store front, they ask proof of income, then inform you what the maximum amount is they will lend to you. Often time, the temptation of $800-1400 in cash is too much to pass up; especially for those who have gotten in over their heads with credit cards.
Sound harsh?
Well, unfortunately, I speak from experience: One takes out a loan for the maximum amount allowable, to pay off whatever emergency or circumstance drove them to such drastic measures, and plan to pay the loan off from their next paycheck.
Guess what?
Next payday rolls around, and if one doesn’t have most of their current paycheck, the electricity will be shut off, there won’t be enough food in the, etc. So, one pays off the loan, horrifying interest included, and take out another loan of the same size. And on it goes, until one finds that he’s actually paying out 400-500% interest on the original loan!
If a borrower is really creative, desperate, and/or just plain foolhardy, he’s over the barrel with several of these loans at one time. Being as payday loans are available on-line, through walk-in storefronts, and via fax, it’s easy to get in the red rapidly. Now a borrower is going from paycheck to paycheck, with most of their money being paid out to the Loan Sharks of the 21st Century with bankruptcy only one very small step away.
Payday advance lenders make a big production of the fact they don’t perform credit checks. For those with poor credit, it’s painful to know that credit standards are allegedly there to protect the lender as well as deter the foolish. Whereas you can have poor credit for numerous reasons in a society rife with unworkable finance systems, the main reason is you have not found the information needed to learn how to manage your finances, or even set up a budget. There are many free tools available through the internet for setting up a budget. And if you do not have internet, or want additional information, the public library has many publications devoted to this subject.
Interestingly enough, in October, President Bush signed a bill into law capping loans to military personnel at 36% APR (as if that is a deal). It seems, however, payday legislation for civilians is even worse being left in the hands of the individual states. State legislation varies from regulating payday advance loans, ignoring the subject completely, to banning these loans (but not always with a viable solution to catastrophe or emergency). Contact your state government to find out where your state falls in this respect.
If you are considering getting a payday advance loan, give yourself 24 hours, and then think it over again. You are taking a chance of sending your financial future into a downward spiral that’s not all that easy to climb out of, and could spell financial disaster, and sleepless nights to boot.
If you do have one (or more) of these loans: Cut out all wasteful expenditures,
Get yourself on a budget don’t spend more than you have and necessities always come first, Stick to your budget, Research out and find ways to generate the additional income you need.
If after all that, (sigh) you absolutely must borrow, then take out a loan for the absolute minimum you need from your credit union and get the lowest rate possible;
Stop the endless cycle of incurring debt.
Don’t let the vested interests of the 21st Century Loan Shark leave you in a plight. Get out while still you can!