Do Payday Advances really make sense?

[snshijuptr]

I have 2 friends that worked in a payday advance place and told stories about customers who came in every month so that they could finish the month. I know that many people do not do this, but use it as a one time solution. I have seen in various places on this board where people have posted in favor of payday advances.

My question is when weighed against other options, what options are riskier than payday loans? At around 300% APY, what is a worse thing to do? I understand when you have no other options, but what if you have options?

Some options include:
401k loans
Personal Bank Loans
Personal family/friend loans
Charging on a Credit Card
Paying the bills late

I am curious as to the pros and cons.

[disneysteve]

Someone who takes a payday loan every month has a spending problem and/or an income problem. The solution isn't more loans. The solution is to cut spending to match income or do something to increase income. You can't consistently live beyond your means.

I'd say a payday loan should be an absolute last resort only under dire circumstances.

[bjl584]

It's probably better to default on your bills for the month and get dinged with the late fees and a hit on your credit score than it is to get caught up with a payday loan. Personally, I would cut back to two meals a day and shut my electricity off before I considered a payday loan.

[wincrasher]

People who use these loans are in a precarious spot in the first place. The exorbitant interest rates are what pushes them over. Most times, their only way out is to revolve the loan into a new loan. It's very similar to what a heroin dealer will do for you.

These places should be regulated out of existance. It's despicable.

[BlackDiamond]

I dated a guy years ago who took one payday loan and paid it right back, like 2 weeks later. He had no checking account, no savings account, no credit cards, basically his only transactions were cash/money order and he left no paper trail. It was pretty shady. lol Anyway, I recall the interest being pretty high. Like insane high. Even though he paid back right away. He took it out for something stupid. I think he was worried they were going to turn off his cable before a big game or something.

[wincrasher]

Well, now that I think about it, if it was for football, then it was, totally, like, worth it.

[ceejay74]

They should be outlawed or regulated to have a more reasonable cost. They prey on the financially ignorant. Like Refund Anticipation Loans at H&R Block (I worked there for one season). I used to try and talk my clients out of those products, but they were so woefully undereducated about money and living hand-to-mouth with no knowledge or ability for getting themselves out of that cycle. Many poor people have a terrible relationship with money and these kinds of services count on that. I think it harms all of society if the poor and uneducated are bilked by companies like that.

[jpg7n16]

Weird... just saw another thread comment on this. They're horrible.

Please read the following sites - and then never get one!

Payday Loans Equal Very Costly Cash: Consumers Urged to Consider the Alternatives

Fact Sheet On Payday Loans

Payday Loans: Dangerous Consumer Rip-Off

[snshijuptr]

Oh I would never get one. That is the point of my Emergency Savings. I was just wondering after seeing several places where people proposed them as a solution if they were even appropriate then. I personally feel that there is nothing worse than a payday loan. I was wondering if anyone could propose a situation where there wasn't a better alternative.

[creditcardfree]

I'd likely file bankruptcy before I would ever use a payday loan. And I'm hardly ever for bankruptcy.

[cicy33]

Originally Posted by BlackDiamond

I dated a guy years ago who took one payday loan and paid it right back, like 2 weeks later. He had no checking account, no savings account, no credit cards, basically his only transactions were cash/money order and he left no paper trail. It was pretty shady. lol Anyway, I recall the interest being pretty high. Like insane high. Even though he paid back right away. He took it out for something stupid. I think he was worried they were going to turn off his cable before a big game or something.

why do you consider this being shady? There are many people who use a cash only basis. Granted some are people who have screwed up their check writing abilities. As a matter of fact you even said he took out the loan and paid it right back. So, he pays back what he borrows and quickly. that sounds responsible to me. Perhaps not responsible to take it in the first place but things happen. I have never used a payday loan and hope I never will. But I am one of those people that believe that I am not able to see what others are going through and be aware that unforeseen situations can and do happen. Now, while I will agree that taking the loan for a big game (if that is what it was) was crazy in my opinion there are some people that would be the exact opposite. but then again, the only game I watch is baseball. football is yucky well to me anyways.

[jpg7n16]

Originally Posted by snshijuptr

... I was wondering if anyone could propose a situation where there wasn't a better alternative.

Someone has a gun to your head and is forcing you to get them as much money as possible from this place.

Even then, it's close

[cptacek]

Originally Posted by snshijuptr

I was wondering if anyone could propose a situation where there wasn't a better alternative.

I was going to say it is better than being on the receiving end of a mob hit. But you beat me to it, jpg7n16!

[disneysteve]

I would say if it was truly a matter of life or death, like emergency medical care, then a payday loan might be worth doing if it is your only option. I suspect that the vast majority of times, however, these loans are taken for much more mundane reasons. Remember, these places prey on the poor and uneducated. You'll never see a payday lender set up shop in a comfortable suburb. You find these places in the inner city along with the check cashing sites (often one and the same). These are typically people who don't earn much and aren't very good at managing what they do have.

[GREENBACK]

OK, perhaps our legislators could focus more on educating the poor and uninformed vs. passing stupid bills that these companies will easily find ways to circumvent. They are no worse than cc companies or Goldman-Sachs for that matter.

Our politicos only care about being re-elected for the most part. I lay the blame squarely on the consumer of these loans but The "help" I've seen offered has come in the form useless bills passed that any lawyer with an online degree could get by. The answer to P.D. loans is that they aren't the answer. Educate the people but stop passing useless legislation that benefits nobody.

[rizzmo]

I have an Aunt who managed a payday loan store for a few years. She worked for a credit card company that fired her for theft so they would not have to pay her pension when she retired. Long story short she sued them and won, but it took years. She was forced to move to a very rual area where the only employment she could find that paid enough and made use of her skill set was managing a payday loan store.

These places make money hand over fist, it is insane. She was taught tactics on how to get people to "re up" their loans. I would take a long time to explain so I'll skip the long detail, but basically it resets the persons loan so the ammoritization schedule starts all over agian. The loans store share list of clients with each other because their is so much profit they don't need competetive advantage. People also borrow from one payday loan store to pay off the other. This is truely predatory lending with interest rates up to 800%.

Even though she had worked in the credit card industry she was sickened by the way these places are able to legally rob people. She found another job in a non for profit that has nothing to do with lending and couldn't be happier.

[Joan.of.the.Arch]

Originally Posted by GREENBACK

OK, perhaps our legislators could focus more on educating the poor and uninformed vs. passing stupid bills that these companies will easily find ways to circumvent. They are no worse than cc companies or Goldman-Sachs for that matter.

Our politicos only care about being re-elected for the most part. I lay the blame squarely on the consumer of these loans but The "help" I've seen offered has come in the form useless bills passed that any lawyer with an online degree could get by. The answer to P.D. loans is that they aren't the answer. Educate the people but stop passing useless legislation that benefits nobody.

Actually I think it required legislation in each state to make these places legal about 20 (25?) years ago. "Usury" laws go back many years in this country. I think usury laws were repealed and new law written that makes the previously impermissable loans permissable. The passage of new legislation meant to accommodate credit card companies by allowing them, in certain states, to charge previously disallowed high levels of interest is probably what started us down the road to make even higher levels of interest legal. Of course, there were always loan sharks, but their business was illegal and prosecutable. Now we've legalized extremely highest interest loans.

I'm old enough to remember inner cities and the skirts of military bases without these payday loan businesses. If payday loan businesses have always existed in the landscape of your life, it might be hard to imagine that exorbitantly high interest rates were once just understood in our "bones" to be wrong, similar to how we understand in our bones that it is wrong to kill the innocent. It was just part of the ethic of our society with roots going back centuries. Guess I can't explain it.

Surely anyone who would take such a loan is either stupid, desperate, or both. It sure feels wrong to me to make a business to squeeze money out of the stupid and desperate, only to make them more desperate...and then squeeze 'em again...and again.

[disneysteve]

Originally Posted by Joan.of.the.Arch

Surely anyone who would take such a loan is either stupid, desperate, or both. It sure feels wrong to me to make a business to squeeze money out of the stupid and desperate, only to make them more desperate...and then squeeze 'em again...and again.

I loathe payday lenders but just as a semantic comment, I think there is a fundamental difference between "stupid" and "uneducated". To me, uneducated is someone who doesn't know any better. Stupid is someone who knows better and does it anyway. I think most of the folks who take these loans fall into the uneducated category. They really don't understand what it is they are doing and aren't aware of their other better options.

[GREENBACK]

Originally Posted by disneysteve

I loathe payday lenders but just as a semantic comment, I think there is a fundamental difference between "stupid" and "uneducated". To me, uneducated is someone who doesn't know any better. Stupid is someone who knows better and does it anyway. I think most of the folks who take these loans fall into the uneducated category. They really don't understand what it is they are doing and aren't aware of their other better options.

I do agree with the "uneducated" part but it's also a bit of stupidity or maybe complacency on the consumers part. There are plenty of sources of information available about making wise financial decisions but many folks ignore it out of laziness or because they don't think about what they're doing.

I liken it to people who don't watch the evening news and are clueless about what's is going on in the world or community around them. You can't educate those who have no interest in being educated. The P.D. loaners may be predators but the world is full of predators and it's up to the individual to avoid a "snake" when they see one.

[disneysteve]

Originally Posted by GREENBACK

The P.D. loaners may be predators but the world is full of predators and it's up to the individual to avoid a "snake" when they see one.

I agree 100%. I say that every time I hear about some scam that is so obviously a scam I can't believe anyone falls for it. If people are going to behave stupidly, they deserve what they get. You can't get all upset because someone broke into your car, for example, when you left your wallet, GPS and other items sitting on the seat in plain sight. What did you expect would happen?