So, let me get this straight, all I have to do is call and you’ll give me $5,000 for free?! Done and done!
Their “Legal Disclaimer” (in small text, of course):
“The APR for a typical loan of $5,075 is 116.73% with 84 monthly payments of $486.58, with a loan origination fee of $75. Individual loan terms such as the APR and any fee may vary and are dependent on the amount borrowed, the term and the borrower’s financial background. A loan will be renewed or automatically extended at maturity with the same terms unless the borrower pays off the loan balance [or Western Sky's renewal policy]. Any late or non-payment may adversely affect borrower’s creditworthiness, may result in borrower being subject to collections or being sued and will increase the outstanding balance due the accrual of late fees and any increase in the interest rate. Read and understand all loan agreement terms and conditions before borrowing. Credit approval is not guaranteed and is dependent upon underwriting guidelines. See our website or call us for any questions. Some documentation required.”
Pasted from this crappy site. Don’t click link.
I just thought you might find this hilarious. And horrifying at the same time.
So, here are the totals:
$5,000 loan is $40,947.72 to payoff over 7 years.
When you look at the numbers, it’s obviously ridiculous, but some people live on these types of loans. I’ve seen them get stuck in the cycle of borrow, renew borrow, renew, and then borrow elsewhere to try and pay it off. It’s really an ugly cycle. When I look at payday loans, this is what I see: A “company”, loaning money, charging exorbitant interest rates and generally taking advantage of people who are already at the end of their rope. It’s sickening, really.
It’s ads like these which reminds me why I started here. I want help educate people to make better money decisions. In my opinion, taking out a payday loan is NEVER considered making a wise money decision, no matter how desperate you are. Getting charged over 100% interest to borrow money in advance of a payday is worse than just burning your paychecks before you cash them. You might as well pay your employer to work for them.
I don’t really have much more to say about this, the numbers speak for themselves. I want to know YOUR opinion on these types of loans.
Comments: Have you or anyone you know taken out a payday loan before? Do you find that they can be beneficial to anyone? How and when? Have you ever seen someone who has gotten stuck in the cycle of borrowing and then continually renewing these loans until the balance is just too much? Would you borrow $5,000 at this interest rate? Seems like a pretty good deal to me….
If you are someone who is looking for a payday loan, you don’t need one, you need a budget. Check out my budgeting basics series to get started, and feel free to hit me up at iheartbudgets :at: gmail .com with any questions.
I’ve never taken a payday loan, but I think, like with any debt, people believe you will be able to pay it off with your next pay check. The consequences of this type loan are just more severe than with credit cards or other consumer debt.
Kim@Eyesonthedollar recently posted..Sad/Happy Debt Story
Yea, the idea is that it’s a short-term loan, but the interest rates are criminal.
I’m sorry, but I don’t understand why people get payday loans. I am probably totally ignorant here..but I just don’t get it. And it makes me sad that the people who take out these loans are probably not in a good position to understand what they are signing up for. It seems like payday loan companies are taking advantage of people.
Holly@ClubThrifty recently posted..My Bucket List – What Being Debt Free Means to Me
One word: Desperation. And yes, these companies prey on people in desperate situations. Just look at the commercial, they make it all urgent for people who “need money now”. So sad.
Bravo! The payday loan industry is among the scuzziest in existence. It argues something like ‘we’re only filling a niche for customers who need us.’ B.S.! I don’t know of surer sign than taking out a payday loan that someone is in need of personal finance education or is somehow a vulnerable individual, and those two categories are payday lenders’ top target markets!
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Yes! That is why I linked to my budgeting basics series at the bottom of this post. If anyone is even considering payday loans as an option, they need some financial help, and I think education is the first step before making any money decisions.
Well, I’m an idiot for not opening up a payday loan company
I had a friend that took them out all the time. She couldn’t pay her bills month to month not because she had a lack of money but because all of her moeny was going toward payday loans.
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Then I would have to mock your company on my blog!
It interesting, the people I knew also had the money, but ended up spending way more on payday loans than it would have cost to pay whatever bill it was a little late.
This seems criminal because they are really going after people who are uneducated. So crazy!
Chase
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It really is ridiculous. You have to be in a bad frame of mind to think this is in any way a good idea.
It is disgusting that companies would prey upon ignorant people who simply cannot afford extreme interest rates like that. I think people just see payday loans and payday branches around town and assume that it is a common service that is there when you need it. They probably don’t stop to realize that it’s the last place that you want to be turning for money. I guess some really don’t have anywhere else to turn. Then once they have that cash in hand, you just know most are going to find a way to spend all that money even if it means a trip to the liquor store and/or a casino.
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You hit it on the head. They have nowhere else to go and feel cornered. But they aren’t, and need to realize there are better ways to handle the situation when you’re short on cash for your bills. I’m actually writing up a lengthy post on this soon.
The only non-college student renters we ever had used a pay day loan service to pay us one month and I felt awful about receiving the check. If they had read their contract they would have been able to figure out that the $35 late fee from us would probably have been less than origination and interest on their payday loan – not to mention probably keep them out of a cycle with the payday folks. Calculating annualized interest rates needs to be taught more in math class. It’s a 5th grade topic, max!
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I think people are scared of reading terms and conditions, and just want the money, NOW! Bummer about your renters. They easliy paid more in interest and fees than your late fee, I’m sure of it!
I’ve never taken a payday loan but have coached people who have. It’s a terrible cycle to break and the interest rate makes it almost impossible to get out of it. These things are extremely popular though, so I guess they serve a purpose. I just wish people could get their stuff together and avoid them all together though.
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It gets worse when they pay a minimum to “renew” the loan. You really can get stuck in a terrible cycle that costs and arm and a leg to get out of (quite literally if you borrow from the wrong person…)
I have never taken out a payday loan and urged everyone I know not to do so either. It is a sure way to get into financial trouble. If you do not pay it on time the first time (and hopefully the last if you are in such financial duress) it can be a never ending cycle. It’s really sad.
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I can’t believe in the T&C they say that they would raise the interest rate if you miss one payment. IT’S ALREADY AT 116%! How much higher can you go?!
This should be a PSA required to air after every payday loan commercial. The stress from these loans ranks up there with the bad health effects from smoking in my book.
Lance@MoneyLife&More recently posted..How to Write a Check
^ YES! Payday loans are the cancer of the financial industry.
These are so obviously bad that it pains me to think that people take them. They prey on soldiers around military facilities too and are a constant source of problems for military leaders.
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I didn’t know about the military, that’s really low.
Services like these are just evil! I wonder if they’re called payday loans because they want the borrowers to think that you can just pay it back when you get paid next? What’s the harm, right? Yikes!
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That’s the gist of it, that you pay it back on payday. The problem is, most people borrowing this money don’t get “$5,000″ on payday. If they did, they wouldn’t be borrowing this money. Predatory is too kind of a word for it.
Yeah this is why I won’t put payday loan ads on my blog anywhere nor in my links. I had no idea the interest rates were like that though. That is truly astonishing.
Cat Alford recently posted..Pay Off Cards Or Save For An Emergency?
There are no redeeming qualities to them as far as I can see.
Payday loans companies make me angry, but what makes me even angrier is the people who use them without researching what they are getting into.
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^ Yes! Maybe it’s pure desperation that blinds them to the consequences, but you sign the contract, you are obligated to pay. it’s what Dave Ramsey calls “stupid tax”
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I watched a friend get stuck in the cycle of payday loans and it was enough to make me *never* step foot in one of those place. Years later she is still trying to clean up that mess.
Bad stuff
They really do hook you in the gills at those places…
I loathe payday loans. I think they make money off society’s inability to delay gratification. Yes, there are situations where an emergency comes up and a pay day loan can be a life saver, but I imagine (based on their marketing) that the majority of users are not in dire straits. I would never take one out unless I’d exhausted all other sources of borrowing (credit card, line of credit, family…)
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I don’t think they should even be a last resort. If you don’t have the cash, then you give up whatever you are trying to save with that money. if you are starving, there are programs to help with that…
I got a payday loan once. It was about fifteen years ago. I borrowed $100 and paid back $115 the next week. That works out to an obscene interest rate, but it wasn’t a bad deal for me at the time. I doubt I’d ever get another payday loan though, since I’m much better at managing my money now and have access to much cheaper credit if I need it.
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That’s the key, you shouldn’t need these loans. I know it won’t happen, but it would be nice if good financial education brought consumers to the point where they would NEVER borrow money from these places.
I feel as though this post is not entirely accurate and I have to personally address this. As you know I have my own blog at bluepelicanloans.com/blog which is built upon a Payday Loan program I started up as means of helping people find honest payday lenders. I’d like to point out a few things before reiterating on them:
1. The program advertised in that video is not a payday loan. The payday loan industry has very strict guidelines set by the federal government that typically do not allow loans over $1000. The lenders I work with will not lend more than $1000 at any given moment to any individual no matter what their credit score is.
2. You have a misconception about the types of people that take out these loans. Payday loan borrowers are not poor people who can’t manage their finances. Quite the opposite. The average borrower is a white male in their mid 30′s with over $50,000 in annual income.
3. Most people that borrow money from payday lenders are not doing so just for emergencies. Although it is true that some borrow to cover unexpected expenses, most of these loans are taken out to make leisurely purchases. I know… it’s shocking – it shocked me too when I first started looking into this field.
4. Although some may call them predatory, I would argue the opposite. The loans exist as an alternative means of getting cash. It is the person’s choice to make the decision to borrow, thus their responsibility to act responsibly to pay it off. Most fees never exceed those of the fees your bank charges when there is a bounced check on your account. In fact, a bounced check typically results in far greater fees as most people can’t replenish their account on the first, even second day – resulting in at least $80 being charged (on average) as a penalty. I have to also point out that the fee to borrow is a fixed one, typically written into the total amount due on the check before handing it over to the lending company. Many people confuse this with different forms of cash advances. In a payday loan situation you are actually making a promise to make the payment upon your next payment day (thus seeing the total amount due up front – before agreeing to the loan.)
To answer your questions: 1. I have personally taken out a payday loan to cover unexpected expenses and paid it off with my next paycheck no problem. I also know people who have done the same with no problems whatsoever. However, I would never borrow $5,000 at the interest rates these people charge as that is just idiotic (there is no arguing that.) Also, while on this subject I have to point back to my item #1 – these people are not payday loan providers and do no abide by the same government regulation as payday loan lenders. I just can’t agree with people calling these business unfair when all of the terms and conditions are clearly presented to them before agreeing on anything. I think the bad rep comes from people who are willfully irresponsible or make bad judgements on their personal financial situation, which ends up reflecting upon the business they are borrowing from and making them look like crooks. Honestly, if you can’t borrow responsibly – why bother.
Veronica,
Thank you for taking the time to respond with your concerns and clarifications.
1. Sounds like the company is more predatory than traditional payday loan companies. What are your typical interest rates?
2. A white male in their 30′s making $50k is exactly who I am addressing. They are the ones who over-leveraged themselves, can’t handle their money, blow it all, don’t have a budget and get desperate to make their rent/mortgage payments. I have personally known these people. What someone makes does not account for their financial situation. Payday loans enable the problem spending, not help them correct it.
3. But the leisurely purchases are something they can’t afford. Which is obvious by the fact that they had to borrow to purchase it. That’s a problem that needs ot be addressed.
4. I can’t think of a situation where you need cash that badly, where you basically need an advance on your paycheck. If you’re living paycheck to paycheck, then you are desperate, and payday loans fill that need by offering cash at a VERY HIGH rate. I see that as predatory. My goal here is to help educate those who can’t balance a checkbook get to the point where they are NEVER in need of one of these loans. My Budgeting Basics series walks them through how to get on a budget, save for emergencies, and get to the point where they are a month ahead. If they can’t get there, I encourage people to send me their budget so I can help get them there.
Now, I I do agree that people making stupid decisions are the ones to blame for getting themselves in debt at payday loan companies. BUT, I see payday loan companies existing to enable these poor decisions and profitting off of it. Those people have to deal with the “stupid tax” of paying high interest rates, but the fact that people can “renew” these loans over and over, creating a HUGE PILE OF HIGH INTEREST DEBT is a company policy that is their main profit motive. They bank on people defaulting on these loans or renewing them.
That’s why I said earlier this week that “no one cares about your money as much as you do”, and companies exist to remove as much of it from your wallet aas possible. I know you started your company to help people, but I don’t see short-term loans as help, but enablement.
Jacob, I fully support your mission of educating people to manage their finances. I’m all for it, which is why I’ve made some personal effort to contribute what I can and learn from the rest of this community (your blog included.) As for the other points, I think it’s a matter of personal need. I’m sure it’s not something everyone is planning in the back of their minds to take out a payday loan. My main concern was the bunching of all payday lenders into one evil industry which I can argue against day in day out. Also, thanks for commenting on my blog, I left a reply there as well. I hope you have a great weekend!
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I do appreciate that you put this in your FAQ on your site:
“If you find yourself in constant need to borrow money, we suggest you seek financial counseling to solve your budgeting issues. Please borrow responsibliy.”
If people can truly “borrow responsibly”, then it’s their perogative. No harm, no foul. I would peronally never borrow from a payday lender, though.
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If you are considering a payday loan, there are several things that you must have in order to qualify. You must have a checking account, as well as be established in your job. Most payday loans require at least 3 months of continuous employment, before a loan can be made.
These type of loans must serve a purpose, since they seem to be very popular.I have never used one. I told my daughter if she ever considered it, to talk to me first, and we would talk about an alternative.
My daughter used to rent furniture. Of course she was always late making payments, which adds to the cost. She finally matured enough, returned the furniture, and bought something within her budget.
These loans are very similar. They are people who will not delay gratification.Until they are willing to change, they will most likely to get further and further into debt.
Should they be banned? No. If a person needed to use this service as a very infrequent occurance, I see no problem. If a person was short on funds and needed to make some credit card payments, otherwise they would be late, it is small amount to preserve your credit.