Payday loans have received a really bad rap, especially in recent times. The idea behind a payday loan in Florida, if you’re on of the wise ones who have left them alone, is that you borrow a small amount of money (typically no more than 80% of an average paycheck), accept the fact that you’re going to pay a shitload of interest compared to other loans, and pay the loan back as soon as you pick up your next paycheck.
The reason so many people are up in arms about payday loans is that they do charge exorbitant interest rates and tend to trap people into a cycle of repeatedly borrowing money. The interest rates advertised are typically between 9% and 14%, which doesn’t sound too bad until you realize that the interest rate does not use the standard annual percentage rate (APR) which banks, credit unions, and other money lenders typically use.
The interest rate for payday loans is simple interest. You pay back X% of what you borrowed, in addition to paying what you borrow, all on your next payday. The 10% or 12% loan you are taking out would be considered a 300% to 400% interest rate, if the payday loans company was using a traditional APR calculation.
The bottom line with payday loans is this: If you can get any other kind of credit, leave the payday loans alone. You don’t need all of that interest in your life.
However, if your credit is trashed, either because of your poor decisions and money management or because of circumstances beyond your control, and you find yourself in a bind when you need cash, and need it now, payday loans are a viable option.
Let’s face it, there have always been payday loan “organizations” around. It’s just that, before the business became legitimized, your collateral was your legs. If you didn’t pay up, Vinny and Tito were dispatched to have an ugly and often painful conversation with you about your lack of responsibility.
Payday loans are, in some ways, today’s loan sharks. But instead of sending someone to break your legs if you don’t pay, they hold on to a signed check for the amount you owe and simply deposit it themselves if you don’t show up and pay. If your check bounces, they take care of business through the court system. While no one wants to be dragged into court over a sum of money that doesn’t even equal a full paycheck, it beats the hell out of getting the hell beat out of you.
The bottom line with payday loans is that they’re an occasionally necessary evil. Use them sparingly and get out of them as quickly as you can.