Quick Note on Payday Loans

I think that Payday Loan places get a bad wrap.  Although I do not know it for a fact, I am willing to bet that the banking industry is behind the smear campaign.

If I borrow (get an advance) on $300, I will have to pay the $300 back in a month, plus about $40 in interest.  This is called highway robbery and taking advantage of the poor. 

On the other hand, let's say I have an unexpected bill go through my checking out.  If the bank "advances" me $20.00, they are going to charge me an additional $35.00.  And if I can't pay the negative balance within a few days, I am going to be charged an additional $35.00 "extended overdraft fee."  These fees will continue to pile up until I can bring my account out of the red.  That $20.00 could easily end up costing me $105.00.

So let's do the math.  For an "advance" of $300 for a month, I pay $40. That's a 13% interest rate over the course of a month.

For an "advance" of $20.00, paid back after approximately two weeks, I pay $105.00.  That's  a 525% interest rate. 

• If you had to have money advanced to you, which interest rate would you prefer to pay?
• Which of these scenarios takes advantage of the poor?

I am not recommending regular use of payday loans.  But the reality - emergencies happen.  Next time you hear someone bashing payday loans, ask them what it cost last time they "bounced" a check.