The Truth Behind Payday Advance Companies

Like many people, I live paycheck to paycheck each month. I have been tempted many times to stop at one of several payday advance companies that thrive in my community, just to get by. However, I know the dangers and pitfalls of becoming a victim to these companies, too. I recently went undercover to one of these payday advance companies to find out the truth behind their lending practices. What I learned may surprise you, as it was a real eye-opener for me.

First, you need to look at the actual amount that you are being asked to pay to borrow on your paycheck. It is a Federal law to be told the annual percentage rate these companies charge you for a loan. Most fees are about $16 per $100 borrowed, some companies may charge more, some may charge less, but the payday advance company I went to charged this amount. That means you are paying around 416% as an annual percentage rate on a measly $100 two-week loan! As the loan size increases, the annual percentage rate actually decreases, but is still close to 413%. If you look at it closely, if you keep borrowing that same $100 each pay period, you are paying that $16 each time you borrow that $100. That means over the course of a year, and 26 payday advances, you pay $416 for the same $100. That is a very expensive advance!

Second, your references and work will be called if you default on your advance. When I was signing up, I asked if anybody I had listed under the reference section would be called to verify anything about me, and I was told no. "But," the cashier added, "if you default on your loan, we will call your references and place of employment to contact you." In other words, if you don't pay them back on payday, your references, who may or may not know you used their names and telephone numbers, will be called and harassed to find out your whereabouts.