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“Pay day” loans gouge the desperate

Bob Morris @ Mar 31st 2008 22:04 - Category: Credit crisis

A pay day loan is typically for a few hundred dollars, with a term of two weeks, and an interest rate as high as 800 percent. The average borrower ends up paying back $793 for a $325 loan, according to the Center.

A quick Google of “payday loans online” showed several sites charging 900% APR for a $100 7 day loan.

Why is this legal?

6 Comments »

6 Responses to ““Pay day” loans gouge the desperate”

  1. Ben on 31 Mar 2008 at 11:14 pm #

    ??? That’s certainly something different than what we have in Illinois where you can only be charged a maximum of $15 for every $100(or 15%).

  2. John Couzin on 01 Apr 2008 at 6:20 am #

    In the UK, as else where I imagine, legal and illegal loans have always lived side by side. The poor and the desperate usuall only have access to the illegal and the rates charged are at the whim of the lender. Well that’s capitalism, isn’t it?

  3. Steve on 01 Apr 2008 at 6:47 pm #

    Is this any worse than the major banks making a significant part of their profits on all sorts of fees that most affect the poor? Such as $39.00 dollar charge for being 10 cents over your limit.
    I used to think that payday loans were bad, but according to a ‘Reason’ magazine article, it’s much cheaper to get a payday loan for a few days then a NSF fee when you buy more groceries than you should have.

  4. Bob Morris on 01 Apr 2008 at 8:50 pm #

    Ben,

    one problem is that while IL might say only 15% interest, this does not apply to loans done via websites.

  5. Bob Morris on 01 Apr 2008 at 8:53 pm #

    Steve,

    Yeah, it’s getting harder to differentiate between credit card company and pay day loan gouging.

    Makes you almost wish for the days of Mafia loan sharks who probably would have been embarrassed to charge 900% interest a year (but then their collection techniques were a bit more efficient…)

  6. DJ on 02 Apr 2008 at 12:08 pm #

    Ben: Is that $15 cap per $100 loaned for a full year? Because if it’s for a week, the APR is not 15%, it’s 780%.

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