You are misrepresenting “Payday Loans”.
Interest rates are 300%-499%. The payout can double in a few weeks.
The proprietors then try to convert them to “title Loans” where the pledged autos can then be repossessed and resold.
These types of loan traps the ignorant and leaves them despondent and broke.
Big banks have invested in payday lenders, got to keep their profits up.
Well, what you point out shows why people need to be educated about consumer finance. People who are educated will make better decisions about their money, borrowing money, etc.
Having said that, I don’t know that I would want to ban payday loan places. I don’t know enough about the industry or how they operate. But, interest rates of 300% and more seem excessive.
Has anyone here ever taken a payday loan? Ever dealt with these places, and can fill us in? Do they really try to steer you to a car title loan at a high interest rate?
I know not everyone has a line of credit, or a credit card. But for those who do, even getting a cash advance on a credit card for an emergency expense, is a far lower rate of interest than you pay at a payday loan place.
I've been down on my luck before and have a little sympathy for people who need cash fast. I've also dealt with idiot banks who wouldn't make loans even when you could prove you don't need the loan.
One recently complained that I didn't show enough income on my paycheck even though we are nearing retirement and I'm socking away over 40% of my take-home pay into a tax deferred 401(K).
I think the main problem with payday loan places is that the government didn't get enough of the action. They could open their own chain of payday loan places and automatically deduct the payment from the next government check. But we know what would happen if they did. Their top brass would be earning mid six figure salaries and gold plated pensions and, even if they charged the same usurious rates of interest, it would be just a matter of time before they were broke and calling for a bailout.
You are absolutely right. I have a friend who borrowed $600 on a title loan and it took 8 months before he’d paid off 39 cents worth or principle. All of the payments were interest.
But, it’s a good thing, because it cured him of ever doing that again.
The interest is compounded on top of compounded.