If you are short on cash and need money quick, payday loans might sound good. They are not! Whatever you do, never, EVER, get a payday loan. They are so bad that some states are working to make them illegal. Washington DC was the first place to outlaw these predatory loans.
According to the Consumers Union, rates on payday loans are 911% for a one week loan, 456% for a two week loan, and 212% for a one month loan.
That does not sound like someone a respectable bank would charge, that sounds like something a mobster would charge. Ever worse, most of their customers are repeat customers. The average payday loan customer takes out 11 payday loans per year. These companies repeatedly take advantage of the people who do not know better and are in the worst position.
Payday loan companies have an average APR of 485%. For people in debt, a 485% loan is not the solution. For people in debt, new debt is never the solution. They need to either cut spending or raise their income. If neither is possible, which I highly doubt, there are other options.
To read about other options and more detail of payday loans, check out the Consumer's Union fact sheet.
Just please, whatever you do, do not get a payday loan. Also remember, friends don't let friends get payday loans.
Have you ever taken out a payday loan? How did you think the experience was? Did you learn any lessons about high interest debt?