Paying Through the Nose For That Payday Loan

Paying Through the Nose For That Payday Loan

James Copper

There are many types of instant loans, but most have the disadvantage of charging a high rate of interest. The reason behind this is simple. Someone who needs an instant loan is, well, needy. Needy people don't ask a lot of questions and they don't dicker. They just take as given.

Some instant loans that folks should shy away from if they possibly can are those payday loan companies that pop up in storefront locations in the poorer parts of town. The other instant loans that pack a big financial wallop when you start paying them back - or can even have more dire results - are title loans.

These instant payday or title loans are small amounts of money that are loaned for short terms by check cashing or similar type business at exorbitantly high rates of interest. In the case of payday loans, the "collateral" is a check written by the borrower to be deposited on payday. In the case of title loans, the collateral is the title to your vehicle.

In the case of the instant payday loans, the borrower writes her or his own personal check for the amount she needs, typically between $100 and $300, making the check payable to the lending company. That lending company agrees that they will hold the check until the borrower's next payday, which typically will be somewhere between one week and one month away. The check will be deposited on payday. It is this promise that allows that lender to give the borrower the instant loan.

The fees that the lender charges for these instant payday loans, however, are astronomical. They can be up to $17.50 for every $100. When you figure this on an annual rate of interest it becomes 911 percent for the instant one week loan, 456 percent for a loan of two weeks duration and down to a very high low of 212 percent on a one month instant loan.

Of course, the worst part of this payday loan, or title loan scheme is that the people who are likely to feel they must resort to these instant loans are those who can least afford to overpay. They are also the ones that these payday loans and title loan firms seek out. Thus, the many locations in the poorest, most rundown parts of town.

The other problem this creates is a spiral that only worsens for these impoverished and desperate folks, They pay an exorbitant fee, which makes their next pay check short, after which they may need to borrow once again and pay an additional exorbitant fee. These instant loans, therefore, only worsen - not help - their financial situation.

The defence of these instant loans by the lenders is that they are short term, and that is just not true. They are very often continual. These lenders also say that instant loans are high risk and therefore require greater charges. This is also not true. What could be more risk free than a written check in the name of a person who has verified her or his home address, phone and workplace? In the case of a title loan what could be more secure than having the title to someone else's car?

These payday and title loans are the worst kind of instant loans.