Fast Payday Lenders

Do payday lenders charge over 200% interest on small loans?

Today, we take a look at some of the misconceptions brought on by politicians when it comes to payday lending. One example is a Colorado group campaigning to limit charges for what they call payday loans claims that current law allows payday lenders to charge more than 200% interest for small loans targeted at customers who are often in dire straits. The claim is in support of Proposition 111, a Colorado ballot measure to cap annual finance charges at 36 percent for small-dollar loans.

Is the claim by the group Stop Predatory Payday Loans accurate? Does current law allow payday lenders to charge more than 200 percent interest for small loans?

No, the claim is inaccurate and deceptive. First, the group’s reference to 200 percent interest conflates interest rates with finance charges. The interest rate is only one of the charges that may be levied on a loan, and Colorado law currently allows four distinct types: 1) a flat-fee origination charge; 2) an interest rate not to exceed 45 percent annually applied to the amount financed; 3) a monthly maintenance fee based on the amount borrowed; and 4) a one-time only charge of $25 for non-sufficient funds (i.e., when a borrower’s check to the lender does not clear).

Second, the 200 percent interest cited by the group relates to loans that remain unpaid after 12 months. However, just 0.2 percent of the small-dollar loans in Colorado in 2015 were written for one year; nearly 83 percent were written for six or seven months [Read more…]

Why would someone get a payday loan instead of charge things on a credit card or borrow from friend at lower interest?

There are several reasons why someone might choose to get a payday loan instead of using a credit card or borrowing from a friend:

  1. Credit card not accepted: Some merchants do not accept credit cards, so a payday loan may be the only option for making a purchase.
  2. Credit card not available: Some people do not have a credit card, either because they have poor credit or because they do not meet the requirements to get one. In this case, a payday loan may be the only option for borrowing money.
  3. Need for quick cash: Payday loans are often advertised as a quick and easy way to get cash, and they can be obtained quickly and easily. This may be appealing to someone who needs money right away and does not have time to wait for a traditional loan to be approved.
  4. High credit card interest rates: Credit card interest rates can be very high, particularly for people with poor credit. A payday loan may have a lower interest rate, which could make it a more affordable option for borrowing money.
  5. Embarrassment: Some people may feel embarrassed or uncomfortable borrowing money from friends or family, and may prefer to get a payday loan instead.

However, it’s important to note that payday loans can be very expensive, and they should generally be used only as a last resort. They often have very high interest rates, and if you are unable to pay back the loan on time, you may end up paying even more in fees and interest.