Financial Experts Warns Against Predatory Payday Cash Advance Lending
By Paul RizzoPayday Loan Writer
A loan to buy a house or pay for college is one thing, but there are other loans borrowers should never, ever take, warns financial author and radio host Dave Ramsey.
On The Early Show Tuesday, Ramsey said many of today’s consumers are falling victim to “predatory loans” — essentially, online cash loans that are too good to be true and wind up hurting the person who takes them.
Ramsey highlighted three of the most common loans to avoid, explained why they should be avoided, and offered alternatives.
Predatory instant payday loans, he says, are nothing but trouble. They wind up hurting, not helping, the person who takes them. While some clearly seem like bad ideas at the start, others seem harmless.
Ramsey says to turn thumbs-down when you come across these offers:
BUY NOW, PAY LATER!
90 DAYS, SAME AS CASH!
NO PAYMENTS, NO INTEREST FOR 3 MONTHS!
NO FINANCE CHARGES UNTIL JANUARY!
Do any of those claims sound familiar? Stores advertise these incentives on everything from lawn mowers to computers. And we are talking big name, big box stores here, “reliable” stores. Chances are, you know somebody who has taken a store up on one of these no fax payday advance offers. And why not? Why not buy something today and then pay it off three months (or six months or a year; terms/offers vary) down the road? Why not hold on to your money if you can?
Here’s why: Nine out of 10 people don’t pay these cash advances back on time.
This is a huge problem because you really are simply receiving a loan from the store. The minute your initial period is up, you start paying a whopping interest rate of 24 percent to 38 percent on the remaining loan balance.
Even worse, that interest does not begin accruing on day 91, it begins accruing from the original date of purchase. Result: That riding lawn mower winds up being much more expensive than you thought. Ramsey says, “If you are playing with snakes, you will be bitten.”
Unfortunately, many people are attracted to these offers. They are appealing, Ramsey says, because they emotionally distance you from the fact that you just made a big purchase. You feel like you’re really putting one over on the store, because you’re walking out with a new, flat-screen TV and haven’t paid a dime.
And make no mistake: It’s not uneducated, low-income people taking these supposedly cheap payday loan offers. Ramsey finds it’s a big middle-class problem.
If the idea is that you will pay the loan back in 90 days, then Ramsey advises simply saving your money for 90 days and buying the item in cash. He has found that if you walk into a store and wave cash around, you almost always swing some sort of discount.
