Why Do People Fall For Payday Loans?

Payday loans can have a annual interest rate of 400%, but people who take them don't look it it that way when they borrow $100 and pay back $115 in two weeks. Many fall into the trap of taking a second, third, or more loans to cover the shortfalls caused by the previous loans. University of Chicago economists Marianne Bertrand and Adaire Morse ran an experiment in which they explained the terms of payday loans in detail, and gave statistics on how the average borrower must continue getting loans.
In a nationwide experiment, Bertrand and Morse found that providing a clear and tangible description of a loan's cost reduced the number of applicants choosing to take payday loans by as much as 10 percent. Better information, it turns out, may dissuade borrowers vulnerable to the lure of quick cash while maintaining the option of immediate financing for those truly in need.

Among the other 90%, some won't change their behavior no matter what, but many have no other credit options available. Link

I responded to this in The Fray over at Slate. There are a large number of people for whom credit simply is unavailable. Those people use payday loans, and while payday loans have a high APR, the actual charge endured by most people is very small because they repay the loan within two weeks. If you want to get rid of payday loans, the easiest way to do that is to make more credit available to poorer people.
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I can't emphasize that last line of your post enough. This is many people's one and only option for credit, and the interest rates are raised so high because the purveyors know that people have no other option. I also second Skipweasel... and have to add that this is one of the major, and many, reasons it is so hard to escape from poverty in the US.
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OMG!! rant - When I worked as a hotel cashier, there was this one employee who would get payday loans every week. And it could only be approved by the general manager. She was so backed up into the payday loans, that when she was let go - ALL of her severance pay went to paying her payday loans.
She did not have education past high school, I felt sorry for her, when I took over that job I sat and explained finance and loans and APR and how a percentage rate works..etc.. but she still kept asking for the loans.

I think it was like an addiction for her.

You have a tangible amount of cash right there and then in your hands, and so you are happy - until it runs out.
And for her, just like Splint Chesthair said,
she did go and buy beer.
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When I was working in retail, I was amazed by the number of people returning goods to get cash before payday. The amazing part is not the return in itself, but the regularity with which several customers would do that.

Why did they always buy the stupid gadget if they couldn't afford it the first time?
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Easy credit is not the answer. People who use loan sharks (legal of not) will max out any credit they are given. I was married to a woman who thought her credit limit was her credit goal. She could arrange her life to pay off loans, but not figure out how to save to prevent needing them.
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there is a big fracas over payday lending services here in SC.....so-called "predatory lending". I recall a time that if you wanted something, you would save up for it. don't feed me the bull sh!t about "the only means of loans, they have no credit". for some strange reason, the black community is upset over these businesses....they "target" poor blacks with their 400% interest and they only locate in predominantly black areas. last time I checked, "caveat emptor" still applies. be responsible, you are not entitled to a damn thing!
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While it's frighteningly easy to fall on hard times in the United States (because of sickness, death in the family and other uncontrollable events in life), many of these people continually make poor choices that create/compound their problems.

How many of them use payday loans to buy bread and butter - and how many of them buy cigarettes and beer?
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Alex, I'm thinking those payday loans go for beer and cigs. Besides, when a convenience store gets robbed, do the thugs clean them out of bread, lunchmeat and milk for the baby?

My dream biz: a check cashing place that also sells lottery tickets, beer and cigs.
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YES - PDL ASSISTANCE is a scam! They don't really want to help you. They just want your money and they promises of help they make are false. They are one step away from being as predatory as a Payday Loan company. The best way out is to help yourself:

PAYDAY LOANS STINK! The political climate is changing and their end is near. Their store fronts are becoming more and more dangerous places to work. Their disgruntled clients are getting smarter, banding together and learning how to fight back. Payday Loan companies offered some valuable service to the community, but for too long, we've been playing by the unfair rules written by these powerful companies. PAYDAYLOANSSTINK.COM welcomes them to exist, but its time that the playing field is leveled. Payday Loan companies have proliferated through intimidation and misinformation for too long. PAYDAYLOANSSTINK.COM exists to give you - the consumer & the employee - the information you need to gain the upperhand. To escape their devious cycle-of-debt trap! PAYDAYLOANSSTINK.COM invites every one affected – including employees of the industry – to join in the discussion and learn from each other.

- JUST STOP PAYING! Always remember to put a Stop Payment on your check. It forces them to stop charging interest and negotiate a payment on your terms. Not theirs!

- Did you know that by sending them a simple Cease And Desist letter by certified mail, you can get all of their harassing phone calls – to you, your work and your family - to stop?

- And did you know that many Payday Loan store fronts are blatantly breaking laws every day? That a simple letter to your City Council or your Attorney General could help to shut them down? Or even get some of your money refunded?

- THE “EPP” EXTENDED PAYMENT PLAN – Available at nearly 70% of the nation’s Payday Loan stores, but yet you are never told about the EPP - “Right now your Payday Loan store is offering a three-month, interest-free payment plan for anyone who has a current loan! Save hundreds of dollars in interest. That’s right! Whether it’s Advance America, Check Into Cash, Quik Cash, Check N Go or some other Payday Cash Advance company, just tell them you are tired of paying interest and would like your FREE EPP. The Extended Payment Plan. Ask for it today before it’s gone!”

PAYDAYLOANSTINK.COM thanks you for taking the time to read this quick comment. Our new site has much more detailed information available regarding the topics above. As well as – “Small Claims”, “BBB & FTC Complaints”, “Arbitration Agreements”, Community Forums & more!
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To all you folks in a huff about payday loans and the companies that provide them, let's take a hypothetical situation and see which makes the most sense:

I work retail at $9/hr and get paid every two weeks. I have a credit card with a limit of $500. After paying for rent, food, gas, insurance, etc. there's never much left of my paychecks. Say one day my car breaks down and, in order to get to work to keep my job, I've got to get it fixed immediately. The repair bill comes to $900 and, even if I max out my credit card, I'm still short $100 and don't get paid for a week; what do I do?

Write a bad check - If I bounced a check to the repair shop, my bank would charge me $35 NSF fee. The repair shop would probably add another $25 to re-submit my check. Total cost=$60

Overcharge my credit card - If I went over my credit card limit, Chase would charge me $39 (and probably raise my interest rate to the max.) Total cost=$39 (and a ding on my credit report)

$100 payday loan - I live in Washington State, our laws allows a maximum fee of $15 to be charged per $100 borrowed for two weeks. Total cost=$15 (We've got a winner.)

So, I get a payday loan for $100, get my car, and pay back $115 on payday. Done.

All of this talk about high APRs is only because current laws require payday loan companies to describe them as annual percentage rates rather than as "fees" which would be more accurate. Banks and credit card companies are not subject to this requirement.

Sure payday loan companies want your money, but anyone who thinks other for-profit companies are in business for anything other than making a buck are delusional. Payday loan providers are providing a service that people are willing to pay for. Some folks will abuse it, sure, but that's going to happen with anything. No business "really want(s) to help you".

There seems to be a lot of misplaced anger aimed at "those people" in these comments. You should be angry at whoever's responsible for your 401k losing 80% of it's value in the last year. I doubt they're hanging around the corner store buying smokes and beer.
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Hey, I came across this link a few days ago, it's not my website or product, I haven't even purchased the book myself. I personally have never had to take out a payday loan but, when I saw this I remember saying there will be a lot of people who would desperately need this info. Sorry if this may be inappropriate but it is right on target to helping people with their payday loans situation: www.paydaycrusher.com
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