posted on Jun, 26 2010 @ 12:05 PM
I used to work for a payday loan store (had to find work somewhere after my call center closed). The high interest rate only really applies when you
look at it on an annualized basis.
They aren't really doing it that way. They are charging you a fee for their risk. They don't actually write the loans (at least, not in Texas).
They just secure it through their line of credit with another lending agency (it is a high risk loan taken on by insurance companies, most often,
through a separate division, and usually owned by the people who maintain services such as "Accucheck", where they clear checks at point of
So, a typical schedule system would be like this:
Your loan is due on your payday. On your payday the entire loan is due. If you take out a loan, the fee is about 20 bucks for every 100 you borrow
(unless you doh't have direct deposit, then it is around 25 for every hundred...higher risk, higher fee).
On your payday you can either pay that loan off, or just pay the 'interest" or loan fee. So i borrow 300, on each payday i have the option of
paying the entire 360, or i can pay only the 60 and carry the 300 till the next payday (or any amount in between, which will lower the fee on the next
payment accordingly). A responsible lender will require a 50 dollar paydown on each payment made after the first 2 or 3. The leeches, though, don't
do this. They are less responsible as lenders and will allow you to feed their register with the same loan indefinitely.
And that is where the rub is. there are some lenders that are parasitical. They will call and threaten action that isn't legal (and won't be
followed through on). It is no different than a loan shark, only legal and at higher fees.
But what is their recourse? They do high risk loans for amounts that are not worth pursuing legally. Of course, they can cause you to rack up NSF
fees, but if you close that account or cancel the check that they have on file, they can't even do that.
In Texas they are trying to make it a "Theft by check" charge, which i fully support. It will push people to take fewer loans, and to actually pay
them off rather than just paying indefinitely and then stopping paying all together. Plus it will give the loan store some protection on a high risk
But, at the end of the day, the way it works is readily available and you sign your name. It isn't leeching off the poor. It is leeching off the
stupid. Our government should not be making laws to protect you from your own stupidity.
On a side note, a lot of banks have gotten in on the action, giving "payday loans" to people with direct deposit accounts. You get a loan up to,
say, 500, and they charge about the same interest, but will not loan more until it is all paid back, using a payment schedule based on drafts from
your direct deposit. It is a better way to do it for most, as paying off the whole loan at once would cause you to go hungry in between paychecks.
And that is what many do. Or they end up paying back along these lines (3 paydays used in this example):
1st payday - pay 160, leaving a 200 dollar principle, and 40 dollar fee.
2nd payday - pay 140, leaving a 100 dollar principle, and a 20 dollar fee
3rd payday - pay 120, paying it off.
This ends up coshing you 120 in fees, on a 300 dollar loan. For some perspective on how a responsible person would be able to come out in the end.