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How One Payday Loan Company Condemned the Entire Industry

by on March 9, 2012

How One Payday Loan Company Condemned the Entire Industry

If you think the 25% APR on your credit card is bad, you should try getting a payday loan. These wicked little cash advances are nothing more than legalized loan sharking. The companies that offer them market their services as a way for desperate consumers to get a small amount of money in a hurry – typically less than $1000 – and then they slam you with APRs that average out at around 500%. This translates to paying $250 in interest for the $1000 you don’t have right now.

If you don’t pay it back by the time your next paycheck comes in, you’ll find yourself on a one-way trip to debtor’s hell. Thousands of Americans, mostly minorities and members of the military, have had their lives ruined thanks to the astronomical interest they accrued from a single payday cash advance.

So imagine our surprise when a company called issued a press release this week claiming that payday loans are actually better borrowing tools than credit cards. We wondered how that was possible, so we gave it a read. We were right all along – payday loans are still evil, and the press release is nothing more than an error-ridden attempt to get exposure. So we decided to use it to help illustrate just why you shouldn’t trust these loan companies. Let’s take a look at the company’s first argument:

“The major problem encountered by using a credit card is that the service is too easy to avail but momentary. If an individual has gone out for out for shopping and finds something really catchy that one is unable to afford at that time, immediately credit card is used … If one is unable to pay back the money on the stipulated time, interest is charged. Not only that if one cannot go for EMI, interest along with the fee is charged that make the things quite difficult in future.”

What? From what sense we can make of this, the payday lender wants you to believe that credit cards are bad because they encourage you to spend money. Okay, that’s fair. What else have you got?

“On the other hand, payday loans are short term loans that are taken at the time of some emergency … With the interest charged is very nominal.”

The loan service appears to have moved on to their second argument without backing up the first one. Unfortunately, their second argument appears to be a flat-out lie. On the company website, the company posts their average interest rate for a cash advance, 651%. What exactly is nominal about that?

From there, the press release descends into Lovecraftian madness. Sentences lose context, grammar is finally abandoned altogether and logic is relentlessly bludgeoned with a club. The result is a cascade of statements like this little gem:

“Once money is availed from the credit, there is no other way of getting the cash back even when the purchased item is returned back to the shop keeper and cash is received in return.”

Apparently, when you purchase something on a credit card, you lose that money forever. Even if you return it at the store and the merchant gives you your money back.

We could go on, but it looks like there’s enough evidence here to rest our case. While not all payday loan companies are as crazy as this one, the company’s press release summarizes the industry as a whole: it’s a group of deranged lenders who want people with a bad history of repayment to give them all their money. If you do business with them, they will drag you down into an abyss of debt, a place where neither sunlight nor sanity can penetrate.

Yeah, that sounds about right.

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{ 1 comment… read it below or add one }

A F "Bob" Blair Jr March 12, 2012 at 7:32 am

Ben, to expand on your article for reader quality: There are 3 type of interest in each transaction: – 1. The PERIODIC INSTREST RATE (PIR), the one that will be used to multiply or compound by the number of periods in a year — 2. The Nominal, Simple-Interest Annual Percentage Rate (SIAPR), the one normally expressed as "APR", which is derived by MULTIPLYING the periodic interest rate times the number of periods in a year) — 3, The Effective, mathematically-true, COMPOUND APR (CAPR), which is derived by compounding the periodic interest rate by the number of periods in a year … which is never expressed in the USA (except in in savings as the Annual Percentage Yield (APY) in Saving in the USA and in all lending the European Union). On your examples the on the 25% credit card the daily PIR is 0.00068493, calculated (using Excel notations, 25/100/365); the SIAPR is given, 25%; and the mathematically-true CAPR is (using Excel notations, especially for compounding ^ ) 28.382%, calculated as (((1+(25/(100*365)))^(365))-1)*100. On the Payday Loan the PIR is given, 25% (for 14 days), the SIAPR is 651.786%, calculated as (25%*365/14), But the MATHEMATICALLY-TRUE, CAPR, is 33,518.821%, calculated as (((1+(25/100))^(365*14))-1)*100. Which mathematically true APR wold your rather pay …. 28.382% or 33,518.821% …DUH!?! The Consumer Financial Protection Bureaus (CFPB) is taking Nominations for the Advisory Board until March 31. I hope some readers would "Nominate" me, the only person espousing the "Truth."


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