Confessions of a Former Payday Loan Junkie
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Check-Money-Payroll Can you say “Cash in a Flash?†That’s all I was concerned about when I began financial suicide using payday loans 9 years ago. I have since learned some very important lessons on why they are usually a very unnecessary evil.
How it all got started. I was young, but not really that dumb when I took out my first payday loan at age 20. I had ran into a small but unexpected medical bill, that put me a month behind on my electricity. Rather than pay the whopping $40 late fee and risk looking dumb to my utility company, I considered all of my options. I had room for a cash advance on my credit card, but there was a $5 minimum fee, plus an amazing 29.99% interest rate. Crunching the numbers in my head, I incorrectly fell for the thinking that a payday loan would be cheaper, easier, and less intrusive on my finances. After all, look how happy those people were in the commercials!
My first loan. I couldn’t believe how easy it was to get that first $200. I brought in one pay stub and my driver’s license, and after filling out a very simple one-page form, I was eligible for a cash loan up to $400. Resisting the temptation (and the teller’s urgings) to borrow the full amount, I wrote a check for $230, and the teller handed me $200. (For those of you doing the math, I paid $30 to borrow $200. The interest rate chart that they showed me confirmed my calculations that I was paying a 15% interest rate. What I didn’t figure into the equation was that it was only for a 2-week period!)
Time to repay. The two weeks came and went very quickly. I was due to repay the loan to the cash advance outlet. They had given me to options: I could repay the loan with cash, and I would receive my check back uncashed, or I could let the check go through. I was already in trouble because I didn’t receive the bonus on my paycheck I was expecting. I didn’t have the money to pay back the loan. By letting the check go through to my bank, I was looking at $39 in overdraft fees and $39 in bounced check fees to the check cashing outlet. If I could just get $230 for a few hours, I could buy back my check, and write a new one for an additional two-week loan. (Costing me another $30 to do so, of course.)
Plenty of cash in the sea. Knowing that cash advance outlets were more plentiful in my part of town than gas stations, I just hit up another outlet. It was easy to write out another loan, for a slightly higher amount, to cover my loan at the first outlet. I was certain that I would never have to do this again, so I justified it.
No lunch for you! Because I got stiffed on my quarterly bonus, and my finances never got any better, my endless cycle of payday loans grew over time. By the time 2 months had gone by, I had opened accounts at 4 different payday loan outlets. I was borrowing a total of $900 every two weeks, with a cost of $135! I don’t even want to think of the total amount of hard-earned money I was throwing away. The worst part of the situation was the shame involved. I was always so good with my money, I was afraid to ask for help, and I had no idea how I could legitimately get more money to get out of this large financial pit I was sinking into. (I also was spending 3 hours on the due date of my loans to drive all over town “robbing Peter to pay Paul.†I was missing my lunch breaks at work and taking off early to get things done. I was living a horrible financial lie.)
Problem solved? I wish I could say that some financial angel came down from the heavens and rescued me from my stupidity cycle. It wasn’t until I did the math on all my loans and calculated that each loan had an annual percentage rate of 390% that I realized the original error of my ways. I took out that credit card cash advance that I had shrugged off earlier in the year. I paid the measly $5 minimum fee, took almost $1000, and paid off all my payday loans. I then humbly approached my boss and asked if there were any special projects or work I could do to earn even a small increase or bonus on my next check.
In the end, it all worked out. I paid off my credit card within 6 months. It wasn’t ideal, but it saved me a ton in the long run. And because I had reached my cash limit, there was no way to increase my existing cash debt with that particular card beyond what I had already acquired. Looking back, I would have just sucked it up and asked a relative for some cash, sold some of my DVD’s on Ebay, or picked up a night shift waiting tables somewhere. All of that seemed like so much work, and I fell into the lie of “quick and easy cash loans.â€
There are all kinds of variations on the payday loan. Title loans, pawn shops, and internet-offered delayed check cashing services all fall into the same scammy category. For more information from professionals on why payday loans are bad news for consumers, check out the Federal Trade Commission’s Consumer Alert. And remember the rule when it comes to payday loans:
“If you don’t have the money now, you will NOT be likely to have it in two weeks.â€
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One Minute Dear, It is Okay that you find it diffcult or say you are not satisfied and just talking about its negative aspects, but just go through its advantages, Like you say how easily you got the loan, Lesser rate of interest. Even now there are companies which can help you on net as well.
I can't believe you "DON'T AGREE" !!! ADVANTAGES!!! what planet are you from! These places are parasites!! They set up camp in the poor neighborhoods and suck the life out of people who run into rough times. Lets not forget that when someone is backed into a corner, they will do whatever it takes to live another day. I'm talking about actual theft, robbery, and assault. Do not, for one minute, think that it ends with "I'm sorry mister payday loan...I promise never to borrow again".
Mr. Online PayDay Loan. Its time to take your head out of your pooper. (im trying to keep it clean)
God Bless
PS- Borrower is slave to the lender
This is an excellent warning to people who are thinking of taking out payday loans. A friend of mine fell into this same trap when he took out a payday loan. In the end he had to borrow money from relatives to pay it off because of the very same reason listed in the article: his paycheck wasn't what he was 'expecting.'
Payday loans are absolutely terrible and they only prey on the poor and ignorant. I'm glad you shared this warning.
Loved hearing your story, esp. about the interest rate quote that was so misleading. My state (North Carolina), like many others, have shut down payday lenders through the efforts of the attorney general (See "Payday lending on the way out in NC" - PDF) --though the process took many years.
Everywhere I look, there is another payday loan lender setting up shop here in NE.. it amazes me that we don't allow so many things (casino gambling being one), but they are almost encouraged here.
They are everywhere in every small town! I remember when the first few opened up in my hometown - they were hailed as a great way for migrant workers to cash checks and "bank" without having to open a bank account. I'm assuming most of the migrant workers figured out the scam pretty quickly, but I know lots of people who never did.
It's so, so wrong. The entire industry.
A local fast-food place closed a few years back, leaving a vacant storefront right across from my apartment complex. I kept wishing someone would open some sort of business there. I figured anything would be a plus to the neighborhood--an additional shopping choice for me, jobs for whoever worked there, extra bustle for the neighborhood benefiting all the other businesses with a little extra traffic.
So, what moved in there? A payday lender. I can't think of a more pernicious presence in our neighborhood--I'm not sure I wouldn't just as soon have a whorehouse or an opium den.
I've been meaning to stop in and find out what the terms would be on a small loan so I could write a piece myself. Guess I don't need to do that now--it's 15% every two weeks. Roll that loan over for a year and (according to my financial calculator) you'd owe $7571. Yikes!
She fell short on cash as many people do and weighed her options. The penalties the electric company impose were expensive as was the credit card. She decided that a payday advance would work for her. "I didn't figure into the equation that it was a 2 weeks loan"?? How long did you think a 'payday loan' would be for? At the end of the mysterious 2 week period, you find yourself in a situation where you don't have the money and you weigh the other options of overdraft fees and bounced check charges that would have cost you $78. Again, the payday advance cost you $30 and no harm to your credit. Paycheck time, you got "stiffed" on your bonus? Really? Your employer just didn't pay you want you earned OR did you not meet the goals set for you to earn the bonus? Seems highly unlikely. You quote "It wasn’t until I did the math on all my loans and calculated that each loan had an annual percentage rate of 390%...". What math did you have to do? The APR was right on the loan ageement you signed. I love how the fact that you didn't have any savings to pay the medical bill in the first place, or that your didn't get a bonus, or that you were to embarrassed to ask for help, or that you abused the product by taking multiple loans, that you didn't read before signing, etc, becomes the fault of the payday lender. At what point do you, the consumer, take responsibility for your actions? What about the 96% of payday advance users that like our product? Should their choice be limited because you didn't use the product for it's intended purpose?
The point of this article, as I read it, was to warn people of the predatory lending patterns and dangers of payday loans. Nowhere in this article did the confessor actually blame the payday loan establishment and it seemed that the writer took full responsibility for poor financial management and poor decision making skills.
According to the writer, however, she was shown an interest rate chart that confirmed [her] calculations that [she] was paying a 15% interest rate. I seriously doubt the clerk actually went over the different between a flat interest rate (with no relation to time) and an annualized interest rate (the APR we're all so familiar with).
If you feel the need to try and justify the existence of payday loans you'll probably not find a very receptive audience on this site. I doubt many readers feel that a 200%-1200% APR is acceptable.
as to where you got the 96% satisfied customer rate.... I'll never forget the people that stood in line with me waiting to get their cash loans. The majority of them didn't know the first thing about other financial options they may have had. Being ignorant of their other choices doesn't mean they are satisfied.
And just in case you didn't know, the APR (or Annual Percentage Rate) was NOT listed on my contract. The loan rate for two weeks was. I doubt that anyone who had the APR of 390% presented to them wouldn't do a double-take at least.
While I appreciate hearing everyone's perspective (even the payday lender, as you have so clearly defined yourself), this precedure, in my opinion, of lending is no better the subprime mortgage lending . And we know where that got our economy.
I'm sure that's why many more states are declaring the practice as "sharking", and several other states are slated to declare the practice illegal. I'm just glad that I had the opportunity to let others know that while it may be legal, it is not financially bright.
I take full responsibility for my actions... that's why I wrote the article. My mistakes can be a learning opportunity for everyone.
(P.S.) In regards to your nasty comments about my bonus: Our company suffered a buyout, and all company bonuses were put back into the company to avoid having to cut back on jobs. I earned my bonus fair and square. Sometimes you just don't get paid what you are owed.
Congrats, Jamie. You've really come up with a fantastic product. It's interesting that you can't fathom that the writer didn't have savings for a medical bill, and yet you claim to be a part of the industry who bilks people who don't have savings.
Oh, wait, did I say "interesting"? I meant "painfully stupid".
I suppose the folks at the Pentagon are just a bunch of sniveling whiners.
"The study co-authored by Christopher L. Peterson, an associate professor at UF’s Levin College of Law, and Steven M. Graves, an assistant professor of geography at California State University, surveyed more than 13,000 zip codes and found that payday loan companies clustered in areas near military bases.
The findings were cited in a report by the Pentagon, and last month Peterson testified before the Senate Banking, Housing and Urban Affairs Committee, during which Sen. Elizabeth Dole of North Carolina referred numerous times to the research done by Peterson and Graves. On Sept. 29, just 15 days after Peterson’s testimony, Congress agreed to legislation prohibiting lenders from imposing an interest rate of more than 36 percent on loans to members of the armed forces or their dependants."
http://www.law.ufl.edu/news/releases/061030.shtml
Will
Despite the fact that Payday Loan companies are trying to spin your article to a positive for them, I want to say "thank you."
I'm glad you were able to get out of that situation without too much harm, and able to pass along a message at the same time.
And everyone, don't forget - some companies understand financial hardships. It NEVER hurts to call and ask for a payment plan for something like a medical bill. The worst that could happen is they say "no", and then you'd be back at square one.
Those commercials have genius marketing people behind them! Hopefully people reading this will think twice and realize these loans might not be as easy of a fix as they seem. Great points that some might not take the time to run through their head before they run for the cash if they hadn't read this!
If you're referring to me, I'm a woman author.
And I have no problem with people exercising their freedom to obtain cash loans at whatever interest rate floats their boat. As long as it is disclosed up front.
Now if someone is going to lose their car, and in 14 days or less they will have the money to both pay for their car payment AND the high interest rates they will be paying, AND this is the only viable option they have, AND they are fully aware of the terms of the loan -- then cool, get your payday loan.
My article was to make the point that this is rarely the case. Rarely.
Responsible payday lenders who belong to the Community Financial Services Association of America MUST post the APR in writing and in bold print on contracts. Also, CFSA-member companies now offer (at no extra charge) an extended payment plan. Payday loans work for responsible people who use them for the right reasons. To you, Linsey, I believe you got yourself into difficulty because of the old saying, "If you fail to plan, you plan to fail."
I would like to point out that your site isn't even a lender, but a reseller or affiliate referrer for cash loans? (Correct me if I'm wrong.)
When addressing fees the site states:
" Your fees are less than the cost of not having the cash you need when you need it - overdraft fees, bounced check charges, taxes, even losing your job because you can't get to work! Actual fees are determined based on the information you provide when you submit your loan application. "
This in itself is misleading. How do you know what fees a customer has to pay or even what the cost to get a loan for an unspecified amount will be?
When addressing repayment the site states:
"When do I repay?
Your repayment is the best part. The minimum required payment will be deducted from your bank account. You get cash when you need it most and repay when you have it!
Still a little short on payday? No problem! Generally online customers are automatically renewed every pay period. Just let your lender know when you are ready to pay in full, and your loan plus fees will be deducted from your bank account by the lender. "
This leads me to believe that more often than not, customers DON'T have the money to repay their original loan, and immediately fall into the debt-repayment cycle I was addressing in my article. This is obviously a real issue.
I worked for multiple years within the corporate headquarters in one of the top 3 payday loan companies in the US, and would like to add some context to some of the statements above. Oh, I'll speak a lot in parentheses and sidebars, so if that bothers you .. too bad.
"I didn't figure into the equation that it was a 2 weeks loan"?? How long did you think a 'payday loan' would be for?
Agreed. From what I saw, one of the first things you walk through with the CSR is when your payment is due, based on your paycheck. The choices are bi-weekly (because weekly is too soon), semi-monthly and monthly. (Side note: it's amazing how many monthly people have their payments due within the first 2 days of the month. Guess what gets paid like that? Social Security checks.)
At the end of the mysterious 2 week period, you find yourself in a situation where you don't have the money and you weigh the other options of overdraft fees and bounced check charges that would have cost you $78. Again, the payday advance cost you $30 and no harm to your credit.
Agreed. For this situation, it appears that the payday loan was cheaper than the options listed above. The credit card advancement probably was the cheapest.
The APR was right on the loan ageement you signed.
Agreed. For the company I worked at, all of their state documents (because payday loans follow state laws and perform transactions within state boundaries, not federal so they can't be monitored by the FDIC) had very clear TILA tables that displayed the APR, most often in the 390% range.
that you abused the product by taking multiple loans
There are some states (Michigan, Oklahoma and Florida are the three I remember) that require payday loan companies to register all transactions with a state-run database in order to stop a customer from trying to get more than 1 loan at a time. The PDL industry fights these regulations with every ounce of strength. So, while I agree that she was "abusing" the product, the industry certainly isn't going out of their way to stop that abuse from happening.
At what point do you, the consumer, take responsibility for your actions?
Agreed. For the most part, what I saw at the company I worked at kept things above-board, and fired those who overstepped ethical lines (the concept of the PDL excluded, of course). To be honest it wasn't much different than working a retail banking center I was also at. I probably don't have to tell you the shady practices that regular banks follow with their fees. At the large companies, the consumer is provided all the information they ask for, when they ask for it. But to someone's comment above, this customer base obviously doesn't know what to ask for.
What about the 96% of payday advance users that like our product?
Yeah, I'm gonna be wary of this number. From what I saw, the company worked hard to work the numbers to get them to say what they wanted, then published that figure. Lies, Damn Lies, and statistics.
My state (North Carolina), like many others, have shut down payday lenders
Yup! I believe North Carolina capped PDLs at 36%, which definitely knocks them out of business. Here's their reality - 1 out of 5 customers default on their loan. 20%. That's because they loan to people that the mob would deny. One person's Teletrack record (Teletrack is a sub-prime credit agency, kind-of like the bastard-brother of the big-3 that nobody talks about) showed 2 bankrupcies in 4 years, a feat that I previously thought impossible. (He got the loan.) There's no way you can build a business on that kind of default rate without some significant APR. I'm guessing my sweet-spot (where my stomach would still turn, but my ethics would start easing) would be around 80-90% APR for these individuals, but that obviously isn't as lucrative, and nothing's stopping them from hitting that 390. (Actually, I remember 495% or something on one state's TILA.)
customers DON'T have the money to repay their original loan, and immediately fall into the debt-repayment cycle
Correct. PDLs make their money on repeat business. The figures I saw were that between 70 and 80% of their transactions come from repeat business. Some states have a cool-off period where a person cannot receive more than X loans in a row (typically 3-5), and must either pay off or be sent to collections. The other item to mention is that
(nobody mentioned this one)
So, a few paragraphs above, I indicated that payday loan companies follow state laws to circumvent the FDIC. Interestingly, within the past couple years they created something called an Installment Loan... like an auto loan, but without the car. It's a loan of up to $1,000-$2,000 where they have anywhere from 4 to 16 regular payments. Last I knew, the TILA was showing an APR of 492%, and people were applying for them left and right. They're working as an intermediary for an actual bank (typically stationed in a very bank-friendly state like Delaware or South Dakota), which means they're under FDIC juristiction. You heard that right - it's Fed-approved, but they don't like it. It turns out that 492% is the magic number where a person, if they follow the loans and rollover only when 1/2 the principal is paid, cannot get into a never-ending cycle. EVENTUALLY, the principal will go to 0. This product has created a windfall for the payday loan companies, and is most likely the next frontier. (The next growth area for PDLs is international.) Becuase it's a Federal product, it can be marketed in states that aren't PDL friendly, like North Carolina and Pennsylvania.
Ok, that's it for now. I don't think anything I put here is confidential or an internal secret ... it's just not easy to consolidate. Nevertheless, I'm going to keep it anonymous. The payday loan companies have a big interest in keeping this information hard to get, and I don't need any more difficulties in my life right now. Hope this helps!
Interesting that you bring this up. The CFSA was not in existence when I had this experience. I wish it had. Furthermore, I see that only 50% of the current payday loan "providers" are members. I hope to see increased participation of lenders, and also a greater awareness of the industry. I still take issue with several of the points addressed on the Myths vs. Reality page of the CFSA website, however.
While it is true that you can get into trouble borrowing stupidly with payday loans, I have used them on just a few occasions to avoid overdraft fees with my bank ($34 each item!) and once to cover rent but I alway paid them off and only used the service when I had no other options. But I think all of the politicians that want to legislate these payday loan stores out of business are missing a serious point. Part of living in a free country is that we are free to make our own choices good or bad. When we start trying to legislate behavior I think we are starting down a slippery slope. I don't always agree with the things some people say but I believe in free speach and their right to say it. I wouldn't suggest legislation to keep them from saying something I don't like. Free people are free to make their own choices for better or worse. Better to educate than legislate!
If you think the APR is "only" 390%, you are wrong!
As Philip Brewer already stated, if you keep rolling over the loan, after a year you will owe $7571. That's not 3.9 times higher than original amount loaned, but 36.85 times. Therefore, the interest rate is 3685%, not 390%.
Here's the calculation:
The first installment, you received $200 and owed $230.
The second installment, in order to receive the $230 that you need to pay off the first loan, you take a loan that will cost you 115% of $230 = $264.50.
The third installment, you need $264.50, which will cost you 115% of $264.50 = $304.18.
After 26 installments (= 1 year), you owe $7571.36
1 $230.00
2 $264.50
3 $304.18
4 $349.80
5 $402.27
6 $462.61
7 $532.00
8 $611.80
9 $703.58
10 $809.11
11 $930.48
12 $1,070.05
13 $1,230.56
14 $1,415.14
15 $1,627.41
16 $1,871.52
17 $2,152.25
18 $2,475.09
19 $2,846.35
20 $3,273.31
21 $3,764.30
22 $4,328.95
23 $4,978.29
24 $5,725.04
25 $6,583.79
26 $7,571.36
damn, that sucks!
i've been using my prosper money to help bail out people in similar situations
As someone who has taken a few payday loans (car problems, no savings) , I can see how it can become a trap. Although I am in no way an advocate I still think people should have the right to chose. Of course sometimes we need to be saved from ourselves, :o) so what they did here in FL is make it where you can only have one payday loan out at any one time, they use a system that will not allow you to run over and get a payday loan from this other place to save you from the first place, also you cannot automatically readvance your money where they will just tack on a fee and give you another two weeks, you have to pay it back in full then there is a 48 hour wait I believe.
And before anyone yells at me yes I am working on my finances, but I dont have any credit cards (out of choice from learning the hard way years ago) and sometimes you just have to feed the family.
I don't think anyone will yell at you... I know about feeding families! Thanks for sharing your experience.
Linsey Knerl
yes, I totally agree they are a trap, people do not realize what they are getting into when they see how easy it is to get one of these loans. I too have fallen into such a trap, but am in the process of paying it off from a loan from a family member. Payday loans should be illegal because they pray on people who are in desparate situations.
Got to agree wholeheartedly that they are nothing more than a trap. I linked to your post on a post I made on my blog regarding a ballot referendum in Ohio this year. Thought it was a fantastic example of what a debt trap payday loans are.
As I mentioned in an earlier comment, Ohio added a ballot referendum this year. I'm pleased to report that the ballot will pass!
Hopefully this will help prevent others from getting stuck in this endless trap, at least here in Ohio.
I believe the reasons payday loans(and car title loans, refund anticipation loans, and finance companies like rent-to-own and Cashcall) exist, is because we don't know how or don't care about spending less than what we earn or get, controlling our spending and gambling habits. People should learn or make it a habit to save 10, 15, 20, or if possible 50 percent of thier weekly/biweekly/or monthly net income or monthly Social security benifits for a emergency, rainyday fund, vacation, or big ticket item.
Credit cards are better than payday loans, but we should beware of some credit card companies that take advantage of low income people with a lack of credit history or credit problems, who are struggling to make ends meet.
If you have no credit history or cleaned up your bad credit(and learned your lesson of course), Captial One(and tiny fraction of all credit unions)have unsecured major credit cards with a very low or no annual fee. The credit limits are low such as $250 or $300, which is good.
I believe payday lenders are finding some of thier stores's business phunging because people are learning to live within thier means, and competition from banks like Capital One and a tiny fraction of all credit union.
There are a few credit unions that are for the underserved population. If someone tells you that all low income people can't manage thier income, then they are telling you the half truth and half lie. Some low income people can skillfully budget thier money. Payday lenders and subprime credit card companies charge high interest and fees, because they wouldn't barely making enough money on a low credit limit or small loan amount.
I wish there where more credit unions like North Community Credit Union in Chicago and Unitus Credit Union in Portland, OR.
On the following link, watch and hear how North Side Credit Union rescued this young lady from the payday trap.
http://hffo.cuna.org/10014/video/1856/html
I'm trying to get a payday loan in Georgia, but I'm rejected everywhere.
Any ideas ?
Thanks.
Andy G - Georgia
i have been trying to get a payday loan in GA too and nobody will accept me! i keep going to websites and the problem is that they are illegal.
I can totally see what you were going through in your story. It's really a big burn to not get paid money you were expecting to receive. I'm glad you found a solution to your problem by taking out the credit card cash advance and paying that off within 6 months. Very impressive! I wish more people would realize that “If you don’t have the money now, you will NOT be likely to have it in two weeks.”
Living from cheque to cheque is pretty tough. Every week, it’s pretty easy to run out of cash. It also becomes a lot more difficult to remember when bills must be paid.
Thanks for being brave to share your story!