In and Out Payday Lending

By: Michael New Jr.

The saying goes "Time is Money", which makes sense to me. The more time you spend at work, the more money you make. The more time you spend away from work the more money you don't make. So things that are time consuming, consume potential earnings. So the question I have is: what do you do with time-consuming endeavors that you engage in to borrow money? When you need some quick cash, the quicker you can get the cash, the better. Today is Valentines Day, and you forgot to get a gift, and you need some money quick. Try getting a loan at the bank and getting your money in just a matter of minutes. It won't happen. The process to borrow money from a payday lender takes about 10-15 minutes (which includes the application process) and they usually give you cash. You will never find an easier, quicker way to get cash than that. So a payday loan is good option, if you need money, but don't have all day to spend at the bank. You are in and out and back to work making money, and you got that special someone a great gift for Valentines Day.

Now we can look at the cost of doing a payday loan. Most payday lenders are required to give an annual percentage rate on their loans, which can be a little misleading since no payday lender can charge interest for an entire year. It seems strange that they are required to give an annual percentage rate. You might see an APR of 520%, but only be paying $20.00 in fees on your payday loan of $200.00 until your next payday which is a week away. Let's look at this $200.00 loan, what if you did not get the loan, and had a check go through your bank account and you did not have the money in it to cover the transaction? Well, your bank will do one of two things; they will either return the check or pay it with an overdraft option. If they return the check they will charge you a NSF fee of $25.00-$35.00. Then the company the check was written to will charge you a bounced check fee of $20.00 or so, and send you to a collection company. If the bank covers the check they will charge you an overdraft fee of $32.00, which most banks would do, and your account would be left with a negative balance. The interesting thing is that banks are not required to give an APR to there NSF or overdraft fees. If they did they would be over 1000.00%.

Here is a common enough scenario. You go out and buy a present for Valentines Day, and it is such a thoughtful gift that you do not let the other person know that you spent that money out of the bank account because it would give away the surprise. Well, your significant other did the same thing and the $100.00 dollars you have in your account will not cover both transactions. After opening your gifts, you quickly realize that you do not have the funds in the account for both checks to clear. You need to make a decision. A payday loan of $200.00 for a week would cost you around $20.00. If you let your bank deal with it, which is what the banks want you to do, you will be out anywhere from $25.00 to $75.00 dollars depending on the bank and collections costs etc. And that is only based on 1 item not clearing your account. What if the account is in the negative, and more transactions come through, well the bank is going to charge you for each one of those items, and could easily lose well over $100.00 dollars in fees, that could have been avoid with a quick, simple payday loan costing $20.00 or so. Any 5th grader with basic math skills can see very simply what the better solution would be to help you manage until your next payday without paying excessive amounts in fees.

Now you can see the appeal of payday lending. For one, you have the cash you need to address whatever financial bind that you are in. And two, the less time you spend borrowing the money, the more time you can spend making money. That is why payday lending is such a wonderful thing and like I said before: "Time is Money".

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