You’ve read articles or maybe even this blog pointing out how unwise it can be to make Payday Lenders part of your personal financial landscape. The long and short of it is that if you look at these loans under traditional banking terms, they’re costing users 300% interest in many cases. That’s assuming you pay off the loan as planned; “rolling it over” or extending the loan will cost you more, and despite the efforts of organizations like the BBB and law enforcement agencies to make consumers aware of these high costs, folks continue to use them. They may have their reasons. Some may use the “cash stores” as a product of last resort, but they appear to be going strong in this economy.
I’ve never made a secret of the fact that I watch my fair share of TV. Maybe more than that. But my BBB hat is firmly on my noggin when I’m enjoying some couch time in front of the big screen, and I often make note of ads representing businesses that could prove problematic down the road. About a week ago, I caught an ad featuring a pleasant Native American young lady representing Western Sky Financial. She was offering to put $2,500 in my bank account by tomorrow morning. During the ad, she said two things that especially caught my attention. First, she said, “Yes, it’s expensive,” and then she noted that whatever those expensive rates might be are still better than payday loan shops.
I’d go so far as to say that an advertiser for an unsecured loan admitting that his services are expensive is a refreshing turn. One of the usual answers I’ve received when quizzing payday loan vendors is that they are serving a market ignored by conventional banks and that they deal with a segment of our population who couldn’t get a short-term loan from anyone else. They also quote huge default rates on those loans, which means the customers who do pay are going to pick up the cost of the losses. They’re in the game to make money — no doubt about it — and even with some limits placed on exactly what can be charged for those two-week loans, I haven’t seen a single payday loan shop close its doors in the ten years or so I’ve been watching them.