Most people know Payday Loans are a bad idea. Except for, of course, the people that use them. This weekend I saw one of these places having a free BBQ outside their store, with a decent turnout. I can already imagine the banner: “Pay 600% APR interest, Start your downward spiral into debt, and get a Free Hot Dog!” Anyways, I guess it was just a matter of time before these guys went online. Bankrate.com just ran an article titled ‘Online payday loans: Borrower beware‘, outlining the many pitfalls of online payday loans. Besides the outrageous interest rates and numerous fees, you have:
- You have to give them all your personal information, including name, address, Social Security number, and the routing number and account number of your checking account. The idea is they deposit the loan money in there, and then suck it back up plus fees after payday. But what if they decide to suck more?
- It can be very very difficult to actually figure out where the online lender is located. They can easily be outside the country (and outside the reach of law enforcement).
A good point that one of people interviewed makes is
If you can afford to pay $45 every payday to keep a $300 loan from bouncing, then you can afford to save it so you don’t need to borrow in the future.
That is, if you can pull yourself out the hole that has already been dug. Think my 600% APR interest quote above is exaggerating? It’s standard.
The most common rate of $25 per $100 translates into an annual percentage rate of approximately 650 percent if the loan is repaid in two weeks.