A Few Reasons Why Pay Day Loans Are A Scam And Why You Need to Run From Them – NOW!
Ive said it once and I’ll say it again. Stay far, far away from payday loans! They are the worst kind of loans ever. They are like a loan shark. I remember watching a commercial for western sky and in their fineprint they stated APR as high as 600%! What’s even crazier is, that’s low! I’ve seen companies charging as much as 2300%! There is no need ever to take out these loans, they will never do any good.
They pay day loan companies prey on people with a lower income and are less educated in personal finance. Because they are so profitable it is unlikely they will become illegal.Our best defense is to educate people about how crappy they are and why it is the worst possible financial decision anyone can ever make! I found an article about someone who should have had someone tell her about them.
Here is an interesting – yet sad calculation and this is why pay day loans are a scam.
Lets say your water heater took a crap and it’s going to cost you $400, but payday isn’t for a week and you are $400 short. The point of a pay day loan is very short term, 1 day to 1 week max. That $400 after 1 day (24hrs) would now be -lets assume 200% APR- $402.19 – that might not seem to crazy and it wouldn’t be a bad deal. The problem lies in that most people can’t pay it back (that’s why they took the loan) so it compounds incredibly fast and soon becomes too high you to afford anyway. Then you get slapped with late fees and other ridiculous fees.
That same $400 after 1 week (7 days) would be $415.38 That’s $15 in interest in 1 week, and most short term loans are much higher than 200%.
Using a credit card, this same loan after a week would be (assuming 22.99% which is very high for a credit card) $401.76 – that’s only $1.76 interest for a week! That’s not nearly as bad.
Here is a lady who should have read this post, she took out a small short term loan and read what happened…I found this on forbes for the whole crazy story!
A few years back, payday loan customer Naya Burks of St. Louis borrowed $1,000 from AmeriCash Loans. Like four out of five borrowers of these high-cost loans, she was unable to pay it back in time. When she eventually defaulted on her loan, AmeriCash sued her. Even after she agreed to an installment plan to pay it back, the loan continued to grow at 240 percent interest.When investigative journalists at ProPublica approached AmeriCash about the case, they quietly settled it, but if they hadn’t, Burks would have owed more than $40,000 on that original $1,000 loan. At that point, her only choice would have been to declare bankruptcy.
And that’s why pay day loans are a scam, they charge ridiculous amounts of money to people who are in a rough spot.
What’s super crazy about the whole thing is it is totally legal. It’s heartbreaking to hear stories like this because chances are she hit a rough patch, saw an easy loan. Had every intention to pay it back but before she knew it he was in a perpetual debt cycle! This happens a lot, DO ANYTHING ELSE. Never get a payday loan!
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