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Payday loans are designed to create a vicious circle of ever-deepening debt.
Key points
- Payday lenders know that many borrowers have few options, and they take advantage of that fact.
- While the initial interest rate you are quoted may seem reasonable, it’s the annual percentage rate (APR) that tells the true story. Payday loans can easily carry an APR of 400% or more.
- Borrowers are unable to pay off over 80% of payday loans, forcing them to roll one loan into another.
Recently, there was an interesting exchange on Twitter. It began with Twitter superstar Nathalie Jacoby tweeting this question to her followers: “What’s 100% a total scam, but we still accept it in society.”
As you might imagine, people had all kinds of clever responses. One of those responses came from money and career expert Tori Dunlap, founder of Her First $100K. Dunlap answered simply, “400% interest on payday loans.”
Dunlap was right. Payday loans are officially the biggest loan scam perpetrated on unsuspecting borrowers. Here, we break down payday loans and offer ideas to help you avoid predatory lenders.
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