PayDay Loans - a Good Deal? NOT

Have you ever checked out the rates for a “payday” loan at one of the many outlets for this type of borrowing?

Before Illinois legislators acted last year to begin curbing the usurious rates charged by these outfits, annualized interest rates could reach 780%. That starts to make 28% from your credit card company look pretty good, doesn’t it?

For a good explanation of the high costs of payday loans, go to http://en.wikipedia.org/wiki/Payday_loan

If you ever consider a payday loan, think twice. And then think twice more.

The U.S. Department of Defense calls payday loans “predatory.” For military personnel the DOD caps the interest rate at 36%. It’s probably impossible now for military personnel to get a payday loan, because those companies have no interest in lending money at 36%.

Call and get the information – all the information; then take it to your bank and ask them how they (your bank) can help you solve your financial problems. And if you really need help, contact your local Consumer Credit Counseling Service. In McHenry County, Illinois, the phone number is (815) 338-5757.

A particularly bad situation is making a payday loan online. When you do this, the loan may escape the rules in your state; for many readers here, that would be Illinois. Our own legislators acted in 2006 to cut interest rates for borrowers. I haven’t researched this, but my recollection is that interest is capped at about 360%. OK, so they did us a favor in cutting it from 780%, but what about some real protection for consumers?

Sometimes a borrower will believe that a payday loan is cheaper than overdraft fees at the bank and, indeed, it might be. Unfortunately, some borrowers then incur both the exorbitant interest rate of payday loans AND bank over-draft fees, when the check for the payday loan doesn’t clear.