The selection above quotes nearly 400% APR. The horror! The problem with this is that the term of the loan is NOT 1 year. It's 2 weeks. The amount charged on the loan is $15 on $100 for 2 weeks. Expensive? You bet. But this is a lender of last resort for many people who have nowhere else to turn. For one reason or another, they need some money right now, but can't get it anywhere else.
In all fairness, I will admit that I DO work for one of the larger payday loan companies, but when I was right out of high school, I needed their services, but they were illegal in my state at the time. I needed to come up with $800 for auto repairs, but I only had $250 in savings. I had nobody and no place to turn. Finally, I found a drug dealer who was willing to loan me the $550 I needed, and he gave me 1 month to pay it back, along with another $550 "interest."
It would be nice if banks would offer low cost, small amount loans, but they don't. Credit unions do have "signature loans" available, but you have to be a member in good standing with a decent credit history. The fact is that these places "retail money," and as such they tend to serve people with poor or no credit, and tend to be pretty bad risks. As such, they have no place else to turn, other than possibly, criminal enterprises, the way I did.
These laws cap the fees and "APR" that payday loan companies can charge at 36%. Think about that for a second. Because the loan term is 2 weeks, that means that the payday loan company would be able to charge about $1.38 on a 2 week, $100 loan. The simple fact is that no company could possibly stay in business at that rate.
Mark
Your post was interesting. Since I didn’t see these payday loan companies growimg up, I figured people got along well enough without them.
I have been in your predicament. I have had to sell my computer. Beg from friends, etc.
When I had the $800 car repair, I typically borrowed a beater until I could get the money. Or in some cases bought another beater. (I am pretty good at spotting usable cars.)
I think I still believe the practice is a net loss, as the situation you describe is pretty narrow (just out of high school).
I do see your point, however. For instance, depending on your situation, you can get a cash advance on a credit card for 0-29.99%. But wait, there’s more! There is a 3% cash advance fee. That 3% becomes an additional 75% if you could actually pay it off in one week. Of course, for a car repair, it would be much less as you’d be within the grace period as you could just use the card for a car repair.