Yeah 1303.57 % APR !! that’s right, it’s NOT a typo ! Woah….initially, I thought somebody mispoke or I misheard or something, but then I did some research and found out people/websites who were offering something similar. Here is the link to the 1303.57% APR lending website. Here, here and here are more links to ridiculous interest rates…one of them even has a 1460% !
In fact the lenders don’t even try to hide the APR under the guise of some crappy fine print..it’s out there for everyone to see (I think there is some kind of a APR disclosure requirement, but I am not sure). And yet this doesn’t seem to scare a lot of people out of this payday loan stuff.
The irony is that these loans, at such unaffordable rates, are being offered to the very people who have run out of money before their next paycheck. The likelyhood that these people are living paycheck to paycheck, and will probably find it difficult to repay the loan with their next paycheck, is very high. Those who do not live paycheck to paycheck are very likely to have some remaining balance from the last paycheck and hence don’t need to borrow from these lenders. Of course, I am excluding the possibility of a really genuine disaster; but I will not be surprised if such genuine events are negligibly small compared to the number of people who avail payday loans.
Where do these ridiculously high APR numbers come from?
Payday loans charge fees per $100 borrowed per week. So if you are charged $25 on a $100 loan, for one week, how much would you pay in fees if you keep the $100 for a year? That will be simply $25 multiplied by number of weeks in the year (about 52.17); this calculates to about $1304 which is 1304% of the $100 you borrowed. Click here for a calculator to see how fees and terms translate into APR.
Other options to payday loans
If you get caught in an emergency situation, before you even think of a payday loan, consider these options.
1. If possible, charge the emergency expense to your credit card. (Costs: Purchase APR about 10% ~ 15%)
2. If you need cash urgently and if you have only credit cards, you can use them at ATM machines to get a cash advance withdrawal (Costs: about 25% ~ 35% APR, no grace period).
3. Some cards like Discover allow cash back transactions (Costs: Purchase APR)
4. Borrow from a good friend (Costs: A home-cooked meal or two; however the wise recommend that money and friends should not be mixed…sometimes the cost might be friendship)
If none of the above options work and payday loan is your last resort, then keep this in mind:
1. Read loan terms very carefully (you can get sued for not repaying on time).
2. Borrow as small an amount as possible.
3. Keep the borrowing term as small as possible.
Resources:
1. Federal Trade Commission: “Payday Loans = Costly Cash”
2. Bankrate.com: “Officials call payday financing “loan sharking””
3. PayDay Loan Consumer Information
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I stash my emergency money in my HSBC online savings. If I ever were to need money… and for some reason I didnt have any in my checking… and I didnt have enough time to transfer it from my HSBC or ED automatically… and my credit cards blew up… and Prosper didnt pay me back quickly enough…
I would simply go up to any atm, insert my HSBC atm card and withdraw. (This comes with a $1.50 surcharge so I never use this option.)
Yep wilks, ATM cards are really handy in emergency. Payday loans are to be avoided all-time for sure, but it never hurts to be well-informed just in case I need one
Thank you for pointing out this highway robbery scheme. When I used to be less resposible and had to get cash to cover checks I had written, I used my bank’s direct deposit advance option at the ATM. They charged a $2 per $20 borrowed fee once you deposited your paycheck. This was a 10% premium but at least it ended there. And I wasn’t financially enslaved.
To the previous Anon…
I think you’re missing the point. It didn’t cost you 10%. It cost you 260% (assuming you paid it off 14 days later).
Usually when referring to the cost of debt, we use APR, or how much it costs on an annual basis. When you say 10%, that is how much it cost on a 2 week basis.
To the second anon: I like the way you think :). If we all thought about it that way about fines and late fees we will certainly take pains to return those DVDs and library books before their deadlines.
i have just been through a bad marriage breakdown where she took everything and now i live with a mate for 6 mths now and own nothing but i need a loan to get car and on my feet again i am working fulltime.I just want to get ahead and over it but my credit rating is bad and i cant get aloan to get anything please help as im at the end of the line and totally overwhelmed to the point nearly want to give up on everything
Ken: Do not despair. Try to think in terms of what you can do. While you live with a room-mate, try to save some amount if you can….may be ask your friend for help. Believe me, you don’t want to avail any payday loans…that might put you into bigger debt hole. So avoid them at all costs.
Remember this, if you panic…you cannot think well. So, take a deep breath and write down your problems and tackle them one by one. Email me if you need specific help and I will be glad to do my part.
Also, it is important that you understand that I am not a financial advisor…at max, I can attempt to guide you as a friend. You won’t get professional advice on this blog.
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