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Why Are Payday Loans Legal Reddit

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Why Are Payday Loans Legal Reddit

Payday lending places are fine, but they are despised because of the wildly high interest rates that exploit the gullible, when they should be legal, it`s somehow immoral. Loan sharks, on the other hand, are criminals because of the harsh methods used to recover money. They are unsupervised freelancers who will do anything to get their money back, and if they decide that you have to pay them another 1,000 interest for each day they are late (although this has not been agreed before), then you are out of luck. What about pawnshops that are legitimate businesses that make quick loans with collateral? A payday loan is a loan that they will give you and for which you do not need to have good credit. They usually allow you to bring pay stubs and perhaps bank statements and give yourself a loan of up to a few hundred dollars. The reason people hate them is because they charge huge amounts of interest. Let`s say if you borrow $500, you`ll probably have to pay around $600 if you pay it back in a few months. APR stands for APR, it is the percentage of the loan. I don`t know your other questions When you get a loan, interest rates are determined by risk.

People who live paycheque to paycheque have a higher risk of default and therefore receive worse rates. They are also more likely than the general public to be uninformed about loans, interest rates and long-term financial planning. Speaking of dismissal. If the landlords don`t like you or you question the legality of the loans, you`ll be fired the next day. One interesting thing is that, under threat of legal action, I saw the company paying secret money to its employees. A best friend of mine left the company and was given $15,000 in secret money to never talk about the company or the incidents that led to her dismissal. So, are these “scams”? What I would say to someone who is considering going to a payday lender is, “Have you exhausted all other possible ways to transfer money?” Informal loans, checks, bankruptcy letters, etc. might well be better than a payday loan. At the same time, the payday lender offers a service close to the cost of procurement, even though it is a service that most people should avoid. That doesn`t make it a scam in the traditional sense, but maybe something we should teach people to hate anyway.

For example, Washing DC limits interest rates on payday loans to 24%. Our interest rate is in the 100s. Some of our major regions are Florida, California, New York and Pennsylvania. All these countries have similar maximum interest rates, which we violate. Ah yes, this aspect is very important when trying to keep it legal. John Oliver wrote an article about payday loans a few years ago. Apparently, in states where payday loans are illegal, many companies have ventured into mortgage origination, with these companies offering short-term mortgages that cost an average of a few hundred dollars. A payday loan is like an advance payment.

When you get the loan, you haven`t really paid for your work yet, but you need money and you pay off the loan plus interest when you get paid by your job. But from an ethical standpoint, the general argument that these places are chasing people in desperate times is knowing that they will accept almost anything if it means buying food that week. The “right” thing would be to give these loans at a more reasonable interest rate so that people can take out the loan when they need it and still be able to repay it without it costing them 40% interest or anything. [Locke] These people need loans out of necessity, not desire. Since there is no meaningful alternative to raising funds, they are forced to make a deal they would not have rationally accepted otherwise. Your lack of choice invalidates the contract. I think he means that interest rates above 60% are illegal. The main reason interest rates are so high is because loans are so risky. Cash America is a payday lender, and they are public, so we have access to their audited financial report. In 2013, we can see that they made a net profit of $142 million on a total turnover of $1.8 billion, which translates into a profit margin of 7.89%.

That`s not huge compared to other industries, like pharmaceuticals, where companies regularly earn more than 15% (and others go bankrupt; it`s a risky business, hence the high profit margin). The TLDR for this is essentially that payday lenders are a “necessary evil”. Updates or changes to usury laws (unethical lending) and more standardized laws regarding payday lenders and other non-conventional lenders would also go a long way toward making these services less likely to affect their clients` financial health. The most important factor is free, accessible and understandable financial education for those who need it most. Source = Financial analyst who has worked in private wealth management and corporate banking. Usury laws limit the amount lenders can charge — including payday lenders — but the limits go no further. Currently, in the United States, a loan would be considered usury based solely on the interest rate if that rate is greater than 35% to 40% APR. It sounds high, but the reality is even worse.

Keep that in mind – I take my $100 paycheck from a payday lender on the 1st, get a $100 loan, and in return, agree to pay him back $120 on the 15th (he keeps my 1st paycheck and I owe $20 more). I just accepted a loan that charges about 11,500% (eleven thousand five hundred) APR!!! Many states would prohibit such a high rate, but not all (AFAIK). Other states have borders so high that it seems ridiculous that they have even bothered to set a limit. You can also supplement interest charges with financing fees and other fees (which have their own limits), but you can significantly increase the effective interest rate the borrower pays. For the borrower, no matter what you call it, if it`s due, then it`s interest. First, you need to have a checking account. If you`ve left a trail of bad checks, it`s not easy to get a new checking account. This eliminates some of the bad debtors. So why not a line of credit from the bank or credit union? Because you need to have a high credit score. Even if you never bounce off a check, you can`t get it without that credit score.

You rarely see people struggling to make ends meet with a high credit score. Oddly enough, these loans don`t positively affect your credit score. Nothing at all. It happens all the time. We typically issue over $100,000 in loans per day. The collection service can be fierce and most people who take out the loans do not have the knowledge to do research themselves. Our in-house debt collection service scares some people into paying. But we also have people who will gladly pay thousands and thousands of dollars for a loan of just a few hundred. Some people are too loyal and honest. Surprisingly, a large portion of our revenue is generated by repeat customers.

Extorting money is not illegal. Do not give the government that it is cut off. It would be much better for a person to ask their boss/employer for a SALARY ADVANCE which is simply deducted from their paycheck later than for a person to go to a payday loan company. If they were to make obscene profits from these loans, it would appear in the financial statements. The most likely explanation for their exorbitant interest rates seems to be that their loans are not repaid as often. In other words, they would probably lose money with an interest rate still high but 50% lower. However, if I were to set the rules, I would limit the interest that can be charged to 25%, but I would also charge a one-time loan fee on the loan so that they could still make enough money on short-term loans to be profitable without also messing up people who can`t repay the full amount in a short period of time. An idiot $2k-5k+ under the table with threat of force against legal wage garnishment? In short, these loans are like broken hair dryers sold to the general public. They only exist because people are too stupid to realize how much they cost and what their other credit options are (and how to access them). As with any business, repeat customers are very good for the bottom line. Unfortunately, payday loans take a toll on the borrower`s financial health. Being a “regular” will make the situation worse, but for many people who use the service, there is no other option.

Some states do not have payday loans because such loans are not allowed by state law or because payday lenders have decided not to do business at interest rates and fees allowed in those states.