Payday Loans & $99 Title Loans - What garbage.

The other day, I was listening to the car radio when I heard a commercial for a title loan company.  They could loan you up to $1,000 for just $99!

The "small print" after the commercial explained how it works.  The fee for the loan is $93, $6 is tacked onto the loan.  At the end of the 30 days, you'll have to pay back $1,099.

Here's my gripe. 

If you don't have $1,099 now, you probably won't have it in 30 days.  What happens if you can't pay it back in 30 days?

They can take your car and sell it for much more than what you owe on it.

You can probably make payments on it, which will come with HUGE amounts of interest and fees.  You can end up paying way more than what you ended up borrowing to begin with.  Then it becomes a never ending cycle.  You borrow $200 on pay day, which comes with a $50 fee.  Then next pay day, you borrow $250 to cover the amount you just paid, which comes with a $55 fee.  This can go on forever.

The title companies / payday loan companies want it to go on forever.  They've got nothing to lose.  You, however, do.

Usually payday loans have astronomical interest rates, some as high as 1000%.  The APR for Check City in Utah is 417.14%.  Their website claims it's "only" $8 per week for every $100 borrowed.

"Only"?  That adds up to be a lot of money.

Check City says most people can borrow up to 35% of their monthly *gross* income.  Side note: Gross income is your income before deductions (taxes, medical, etc).  

From CheckCity.com

When do I have to pay it back?
	Payday loans are short term and therefore, are usually set up to be paid back on your next payday.

So...they're letting you borrow up to 35% of your monthly income, but they're expecting it to be paid back by next payday.  If you do that, you'll need to live off of less than 15% of your normal paycheck.

The average Utahn makes approximately $1,532 every two weeks ($3,064 monthly).  That means the average person can borrow approximately $1,100 from Check City (I rounded up for the purpose of this conversation).  If the interest rate is "only" $8 per $100 borrowed, it's going to be roughly $176 for a 2 week payday loan.

I don't know about you, but I don't have $176 to just give away.

Not only that, but that leaves the average person with just $356 left until next payday.  After taxes and other deductions, living off of what is left is going to be painful...unless you take out another loan, of course.

This is a problem.

President Bush signed a law that limits the interest rates on pay day loans to 36% for members of the armed forces.  Instead of lowering the rates, the companies just refuse to loan money to service members.

Some groups in Missouri want to lower the interest rate for everyone down to 36%.  Lobbyists would hear nothing of it!  The payday loan companies contributed over a quarter of a million dollars to the politicians.  One of the politicians even owns a payday loan company!  How is that not a conflict of interest?

My suggestion?

If you have $176 every payday to just give away, you should consider putting it away.  If you bring home $1,532 and can live off of 15% of your "gross" pay, then you don't need one of these loans.

If you absolutely have to borrow money from one of these places, make sure you only borrow what you absolutely need.