Advances and Payday Loans

Lie #4: Cash Advance, Payday Loans, Rent-to-Own, Car Title Loans, and Buy Here Pay Car Lots are tools to help lower-income people get ahead.

In actuality, you will never get ahead if you fall for these rip-offs. These scum have found a way to legally make themselves rich on the backs of the poor or those headed to the poorhouse. With interest rates of over 100 percent, there is no way you can ever get ahead. Ever wonder why they are most often located in the poorest parts of town?

What a lot of people don't realize is that up to 40% of the people in this country do not have a regular banking relationship with a financial institution. There are many reasons for this. Some have written bad checks in the past and have gotten on a black list so that a bank won't open an account for them. Some people work 'under the table' and don't want their income showing up anywhere. Some people are here illegally and don't have the documents to get a bank account. Whatever the reason, checking cashing outfits have sprung up to cater to these people and only charge 5% to 10% of the check amount to cash their checks for them. This only puts people further in debt, because these people are the very ones that can't afford that 10% fee.

The Payday Loan is one of the most insidious financial products out there and is usually found at the same check cashing outfits. These leaches know that emergencies happen to all of us, and these days most people are not saving for a rainy day. The people they prey on with this product are generally ones that have a checking account and job, but with no credit. For example, they offer to let you post-date a check for $225 for the date you get your paycheck. They give you $200 and keep $25 for a service charge. That only equals 650 percent interest annually. What a deal!

So you go in on payday and repay the $225. The only problem is now you don't have enough money live on until the next payday, so you take out another payday loan and pay another service fee. Some people get into this trap until they can never catch up. They tell themselves that their luck has to change and some extra money will come from somewhere to end this nightmare. It rarely does, because the people in this scenario rarely change the behaviors that caused them to get into this situation or are willing to do whatever is necessary to get out of this con game, (like finding extra jobs or selling things around the house), to pay it off once and for all.

Buy Here Pay Here car lots are not much better. They generally sell older, cheaper cards. The down payment is usually equal to what the dealer paid for the car and the 18 to 38 percent interest you are paying weekly is pure profit. When you can't keep up the payments, the car is repossessed and the dealer can sell the car all over again for even more profit. If people would only take that down payment and save up for a few more weeks, they could do a better job of shopping around and pay cash for the car.

The Federal Trade Commission is constantly investigating the Rent-to-Own industry because the effective interest rates average over 1,800 percent. These places thrive because people only look at how much would it cost me a week and think, I can afford that. If you actually look at the number, nobody can afford this. For instance, the average washer and dryer will cost you only $20 for 90 weeks. That is a grand total of $1,800 for a product that you could have bought cash for $500 or gently used for $200. These places depend on the fact that people no longer save up for things and have been indoctrinated to 'Want it NOW!' They know that people are not disciplined enough to just save $20 for ten weeks to buy it cash.

One of the best ways to stay poor is to do business with these types of outfits.