Caught Between a Late Fee and a Payday Loan

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Payday loans are bashed by consumer watchdogs because of the loan shark-like interest rates involved, which can exceed 450% when annualized. Nonetheless, the payday loan business is thriving, especially as consumers realize that an actual job is not required. The day your unemployment check arrives also counts as a payday, so if you’re collecting unemployment you can also take out a payday loan.

The LA Times describes how the system works:

A typical unemployed Californian receiving $300 a week in benefits can walk into one of hundreds of storefront operations statewide and walk out with $255 well before that government check arrives — for a $45 fee. Annualized, that’s an interest rate of 459%.

And here’s an example of a payday loan customer:

Ed Reyes, a Los Angeles resident who lost his job in retail about six months ago, said he has had to take out payday loans three times since becoming unemployed. The advances on his government check, he said, have helped him pay his household bills before late charges accrue.

“To be honest, I didn’t know if they’d give me one, but they did,” he said, standing outside the unemployment benefits office in downtown Los Angeles.

Ignacio Rodrigues, a clerk at Van Nuys payday lender Ace Cash Express, said about a quarter of first-time borrowers he sees now use their unemployment checks as proof of income.

Read more:
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How to Outsmart a Debt Collector

4 comments
felicitysanderson1
felicitysanderson1

That's interesting in your first paragraph that your unemployment check coming in is considered as income when taking out a loan. I mean, when you're stuck in between a rock and a hard place, that might be the only option until you get back up on your feet. How long do payday loans usually offer their payback time frames? As long as you're never late on your payments and know there's no other fees in the paperwork, you should be okay to no accrue any more debt with taking a loan out. 

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JohnnyShi
JohnnyShi

I didn't think that payday loans would be so tricky. It wouldn't make sense financially to take out a payday loan the day of unemployment. There would be no way to pay the loan back. Because of the payday loan is high interest this seems like it would be an extremely poor decision. However, if it comes down to that and paying household bills maybe it could be possible. http://www.tigertitleloans.com/

JamesSimon
JamesSimon

Payday loans are a tricky business, but so are most lending practices if you think about it. If you know you'll have the money, then there's no reason you shouldn't be able to access that a little sooner if need be. I wouldn't recommend getting a loan for your whole paycheck, but for a small portion of it, it might make sense.

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doranwaugh
doranwaugh

If the state wants to help people out of their troubles, then it should act positively to address the cash demands of people. If it does not act on this side, then it must avoid putting restrictions on payday lenders that help people with cash when they need the most.