Payday Loans were once reserved almost exclusively for small arguably shady outfits. Some of these often contact me to make (sometimes buy) guest posts on this blog about the payday loan industry. So far I have refused all of them and generally avoided the topic at all. But recently I read that the big banks are getting into the business.
So, what makes payday loans bad? For one they have ridiculous interest rates over 100%, sometimes even over 600%. Also the people who make use of payday loans are exactly those who can’t afford them. If you don’t have money, a 300% loan is not exactly your cup of tea. Here are some sample (over 500% based on a rough calculation) rates. I picked rates from different states to show you that no matter where you are, a payday loan should always be your last resort.
Payday loans are so bad that 12 states have laws against them. Big banks getting into the business means that even people in those states will have access to payday loans. For example Wells Fargo disguises it’s payday loan as “Direct Deposti Advance” and has an APR of 120%. Better than the small lenders but still disturbing. Wells Fargo has been at this practice for many years and even stirred a controversy over ten years ago with this product. US Bank started offering payday loans in 2006. Fifth Third Bank recently started their own program too.
I’m not entirely sure why big banks need to scam their customers this way. The people who are eligible for the loans with the big banks already are direct depositing their paychecks, have jobs and they must have some better options?If you are someone who does use payday loans, you might want to check out personal loan options first.