Have you ever taken out a payday loan?

These short term loans have been discussed a lot in the news lately because federal plans to restrict payday lending (basically, a lender would have to prove you can probably pay the loan before giving it out) have been shelved for now.


A lot of people say payday loans are evil because of their fees - some have interest as much as 700%. But others say they're essential for people who are unbanked or underbanked, meaning they manage their money outside of our typical system of traditional banking.

I've written about this topic a bit, and I still think about it a lot. How do you feel about payday loans? Have you had any experiences with payday lending, either positive or negative? 

Original Post

I personally have never used a payday loan. However, I think they ultimately are hurting people when it comes to managing money.

I can see how in some cases there may be a need for one but I don't think they should become something that anyone should rely on.

The idea of getting your money now instead of waiting creates an attitude of instant gratification and if you are not careful, can lead to much deeper financial issues.

Developing a mindset of getting everything "now" will only encourage you to spend more frivolously and discourage making good financial choices, planning and living below your means.

The interest rates on these alone should be a huge red flag to anyone considering them.

The way I see it, the payday loan companies are in the business to make money.

Even though they may market and promote it as a helpful service to the consumer, ultimately, the only person who ends up losing is you!

I have never taken out a payday loan & never intend to, as I believe that they are EVIL.

  I have heard that the interest is extremely unreasonable & it seems that these places pray on people that are unable to get credit for various reasons that need some sort of immediate help.   It seems that they are located in some of the poorest areas of town with a lot of vulnerable people in the neighbourhood.  That & cheque cashing places that charge extremely high fees.

The government (Canada & provinces) has put some regulations in the last decade but they are still talking about doing more to protect the consumers.  

I was listening to The Indicator podcast the other day, which focused on payday loans. It shared the story of a woman who got a payday loan when she had a financial emergency, but then it spiraled out of control when she could never catch up after taking out that one loan. She explained that she would use a credit card to pay off a loan, then a new loan to pay the credit card, and so on and so forth. She's in a better situation now, but it helped put into perspective how an emergency situation can lead even the most sensible of people to making a financial decision that hurts in the long term. 

I always say you have to make the best choice with the resources you have. Sometimes, none of the available choices are great. 

These loans are absolutely predatory and evil.  They are concentrated in poor minority neighborhoods to take advantage of people who historically, have little or no access to credit.  They are yet another tax on the poor.  I include the rent-to-own stores and the buy-here pay-here car lots in that category as well.

I have never had to take a payday loan, but I believe they are a financial tool that serves a need for un-banked or under-banked persons.  The purveyors of these loans do not and could not remain in business by servicing customers who use the loan products to provide a stop gap in an emergency.  The purveyors prosper by enslaving the customers to long periods of indenture paying increasing interest to service the loans.   I actually compare the companies to drug dealers, bar owners, and casino operators who like pay day loan companies could not survive by casual users of their products.  

Years ago I was stuck in a vicious cycle of payday loans. The only way I got out from under it was to borrow less and less each time I repaid/reapplied. Took me several weeks but I got away from them and never looked back. They are like escaping an abusive relationship.  LOL

Payday loans prey on the poor and minority population.  They are evil.  Source:  I used to work for one.  Quit the job because I could no longer live with myself. 

We were taught to battle objections for paying back the loan.  We had an entire BINDER on collections practices.  I have seen employees take checks to the bank to convert the check to a cashier's check when clients did not come in to pay the loan.  I have seen employees who would ask the questions of bank tellers, "Is this check good?  If this check was for $400 instead of $500, would it be good?  $450?  $475?"  I have seen customers at banks who have not changed their default settings, thereby, someone else can call and gain account information through the automated system.  I have seen a customer $6 SHORT on paying back a loan.  I have seen an employee take $6 and deposit it and then change the customer's check to a cashier's check made out to the company.  When you are not making portions of your payroll or have a district or corporate office crawling down your throat because you are not collecting on loans, you have employees who are desperate to clear those loans.

Please steer clear.  My advice to someone is to borrow less and less every pay period.  Take the difference you would pay in fees and put it in a bank account.  Build that account up and use it to extricate yourself from them.  Use your tax return to pay them and NEVER USE THEM AGAIN.  Build an emergency fund.  They make money because 99.99% of people cannot pay them back without taking out another loan again.

@Adam I love that idea, except our post office locations would have to increase their hours and their counter staff to make that work without frustrating the masses!

I recently learned that some check-cashing/payday loan stores are open 24 hours. No wonder busy, stressed people go there - it's convenient as heck.

I'd love to see the USPS expand its staff. I think it's also a good way for the USPS to respond to technological changes in the industry. I don't know if they would have to necessarily increase hours. I didn't check, but aren't banking hours and USPS hours pretty much the same already?

The biggest reason I think those payday loan providers exist is because they are in areas where banks don't want to operate. 

Payday loan companies are responding to a market.  They charge the high interest, because they can.  Other than the unusually high rate they are not too much different than other companies that offer credit and loans.  They all charge what ever the market will bear.   Think of the actual rate of interest you pay on a credit card, if you only pay the minimum required amount.  People who use their credit cards for convenience paying them off in the grace period or as quickly as possible pay little interest.  Those who max out their credit cards and only pay the minimum due end up paying a hefty rate of interest.  

One person suggested having the USPS make loans.  The USPS already looses enough money.  Remember many who use payday loans get in over their head.  I am sure the default rate on pay-day loans in high.  Do we want the USPS to get into the debt collection business.

@Arthur Pember I think the USPS already has their hands full enough trying to stay in business delivering packages and competing with other companies!

You are right in the fact that they are similar in concept to a traditional loan. Unfortunately, the people who use payday loans consistently do so generally because they just don't have a good grasp on their finances. Without realizing it, they end up falling deeper and deeper into financial problems.

I do believe there needs to be a little more accountability with the payday loan companies but as unfortunate as it is that people have to use them, it is as they say "nothing personal, just business!"

The post office does not need to be in the payday loan business.  Do we really need the government involved in another industry?  They have enough problems.

My issue with payday loan companies has nothing to do with interest.  Remember, I said up thread that I have worked in the industry.  My issue is with the collection practices.  If you default on a credit card, you're receiving annoying mail and the occasional phone call.  You may even end up receiving a judgment and a garnishment.   Do the credit card companies show up at your home? Do they show up at your job? Do they harass your relatives? Do they talk to your employer, trying to track you down? One time, a guy was delinquent on his loan.  He was home when I came to the door, but refused to answer it.  "What finally got him to come in to pay?"you ask.  I took fliers with me and went to his neighbors and handed them out.  I casually mentioned to a neighbor that I had knocked on the other dude's door, but there was no answer.  Neighbor told me that the guy was home, that he arrived a couple hours prior from work.  Maybe he was asleep.  I thank the neighbor and head back to my car.  The delinquent guy is looking out his window right at me.  I wave to him and smile and head for my car.

He came in the following day and paid.  Guess he was afraid that his neighbors would know his business.  

I've had to show up to people's homes, their jobs, their mother's house.  One guy left his PASTOR as a reference.  That was an interesting conversation.  You tell the references that you are calling "regarding a personal business matter." If they ask what company you are calling from, THEN you are at liberty to say.  Then again, many folks have caller ID.  Your business becomes everyone else's business if you go late on a payday loan.

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