The Scam of Payday Lenders

Photo: I drive by this payday lender everyday on my way to work.  It's the worst part of my drive.

By now you have figured out that debt is evil and should be thrown out to the curb and never to be let back in!  Once you reach this point of freedom from debt, then you can start building wealth!  Today, I would like to talk about the scam of payday lenders.  I have mentioned that I used a payday lender once and only once.  That day changed my life and I will never do it again.

Payday lenders scam you out of your hard earned money.  They get you because you are desperate.  They charge you ridiculous amounts of money for loaning a small amount.  If you are visiting a payday lender, it’s because you have no other option.  It’s because you are spending much more than you make.  Payday lenders actually hurt you more than they help you.  Their business model is based on people who need advances on their paychecks.  They pry on the desperate. 

When you are desperate, you don’t really think about how much interest they are charging you.  Technically, they just charge you a service fee, but when calculated into interest it’s absurd.  You would never make this choice, if you saw the interest rate.  Let’s do a little calculation.  I went to one of the cash advance websites and plugged in that I needed a $500 advance.  They were charging a $75 to borrow $500 for less than a month.  You had the option of choosing how long until you paid it back, from 7 days to a month, but the fee was the same.  So, to calculate the interest rate annually, this company would have charged you 180% interest if paid back in a month.  That is crazy!  But if you paid it back in seven days, then the interest would have been 780% annually.

Are you kidding me?  How do these businesses survive?  You must think before you ever step foot in a Payday lender.  Their fees alone will stop you from every reaching any type of financial security.  Payday lenders essentially keep all of their customers in poverty.  Our goal as a society should be to educate everyone so that they don’t make the mistake of being scammed by these payday lenders.  We don’t want to keep people in poverty, but that is what these companies do.  Their business model is designed to keep people down. 

Most people don’t know that they are making huge financial mistakes.  They were never taught how to handle money.  They were never taught the perils of debt.  So, we must be the ones to teach these people about debt and payday lenders.  All of them are evil.  Help out your friends; don’t let them make bad financial decisions.  They will thank you in the end.  Spread the word, no more payday loans for anyone!  It’s important that everyone knows that there are other options.

Other Code Red Loan Options

Title Loans - Title loans are horrible, because you take a vehicle, which you own and go take out a loan on the title of the vehicle.  This is completely backwards, because you worked so hard to pay off the car loan and then you go back into debt on the same vehicle.  Just a horrible idea.  This type of loan charges 300% interest and you have the possibility of losing your title, if you don't pay.  Read more about title loans from this article on bankrate.

Direct Deposit Advance - This is something banks have started offering to the customers who have shown a trend of depositing their paycheck monthly into the account.  I think the trend is six months, and then you can call the banker when you need money and they will advance you the money and then take that amount and a fee out of your next direct deposit.  I calculated my interested rate to 90% annually, but I did not take into account that I get paid every 15 days, so I only borrowed the money for two weeks at the most.  This realization means that the bank charged me 180% interest annually for making the mistake of spending more money than I had.

Rent-to-Own - Most people don't understand that they are paying interest when they purchase something on a rent-to-own basis.  All these people think about are the monthly payments.  They charge much more than the monthly payments.  Matt Breed at listed three great examples of the true costs of purchasing rent-to-own items.

40″ LCD TV
Buy it Now Price: $1,199.99
Rent-to-Own Price: $1,919.76
Interest Rate: 60%
Lowest Price Found for Same Product (new): $499.00

23 Cu. Ft. Refrigerator
Buy it Now Price: $1,499.99
Rent-to-Own Price: $2,399.76
Interest Rate: 60%
Lowest Price Found for Same Product (new): $699.00

XBox 360 Halo Bundle
Buy it Now Price: $629.99
Rent-to-Own Price: $839.88
Interest Rate: 33%
Lowest Price Found for Same Product (new): $399.00

As you will notice, the rent-to-own stores in these three examples were charging 33-60% interest, but these stores have been know to charge upwards of 100% interest.  The issue with these stores are that the interest rates are not disclosed, because you are not taking out a loan.

Today, I have listed four different types of scam loan opportunities.  These lenders over-charge the consumers, because of desperation.  These types of loans will keep you in poverty the rest of your life.  If you want to get to the financial summit, then never under any circumstances can you use these types of scum lenders.  They are not there to help the consumer.  They there to make a quick buck.  If you find yourself using these types of stores, then your financial footing is at code red status and needs drastic changes.