Why I Hate Payday Loans

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I hate payday loans and payday lenders.

The way a way a payday loan works is that you go into a payday lender and you sign a check for the amount you want to borrow, plus their fee.  They give you money that you don’t have to pay back until payday.  It’s generally a two-week loan.

Now, this two week loan comes with a fee, so if you want to borrow $100, they’ll charge you a $25 fee, plus a percent of the total loan, so for that $100 loan, you’ll have to pay back $128.28.

That’s only 28% of actual interest; that’s not terrible.  However, if you prorate that to figure the APR, which is what everyone means when they say “I’ve got a 7% interest rate”, it comes out to 737%.  That’s nuts.

They are a very bad financial plan.

Those loans may save you from an overdraft fee, but they’ll cost almost as much as an overdraft fee, and the way they are rigged–with high fees, due on payday–you’re more likely to need another one soon.  They are structured to keep you from ever getting out from under the payday loan cycle.

For those reasons, I consider payday loan companies to be slimy.  Look at any of their sites.   Almost none are upfront about the total cost of the loan.

So I don’t take their ads.  When an advertiser contacts me, my rate sheet says very clealy that I will not take payday loan ads.  The reason for that is–in my mind–when I accept an advertiser, I am–in some form–endorsing that company, or at least, I am agreeing that they are a legitimate business and I am helping them conduct that business.

In all of the time I’ve been taking ads, I’ve made exactly one exception to that rule.   On the front page of that advertiser’s website, they had the prorated APR in bright, bold red letters.    It was still a really bad deal, but with that level of disclosure, I felt comfortable that nobody would click through and sign up without knowing what they were getting into.    That was a payday lender with integrity, as oxymoronic as that sounds.

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