We’ve all driven through run-down neighborhoods. And we’ve all noticed the payday loan shops. Until recently, I thought those companies swooped in because people in the area were going broke and needed a last resort. But now I realize payday lenders aren’t coming to a poor community – they are creating a poor community.
Payday lending companies are commonly referred to as predatory lending companies. It’s hard for me to tell you exactly what they are because they are always changing their practices to skirt the law. Here’s how to spot them. But honestly, just don’t go into a sketchy looking place to borrow money. I don’t know if they will break your knees or put your feet in 2 paint cans full of concrete and throw you into the Hudson – but they are bad news. I thought credit card companies charging 30% was ridiculous but many predatory lenders charge 300%! They claim that 300% is APY so that’s not really a big deal. They tell their victims they will only be borrowing the money until their next payday, so the money they pay on interest really won’t be that much. But few people borrow only once. They keep coming back. And the high interest rates are there waiting with open arms.
I’m not a fan of a lot of financial service providers. I’ve seen them take advantage of ignorant consumers. That’s why I think everyone should fire their financial advisors in about 3 seconds. But predatory lending is the worst of any financial ‘service.’
Predatory lending should be avoided at all cost. I’ll never take out a payday loan. I’m too busy making sure my financial life is sound enough to never be tempted. So instead of taking out a loan, these are the things I would encourage anyone to do instead:
Payday lenders say they can do things like help you when your car break downs or pay for Christmas presents. News flash! Those things happen! You need to keep a cash pile ready to pay for such occasions. Not having money for Christmas presents is no excuse for taking out a loan. I save a ton of my income. It’s creating a barrier between me and an uncomfortable life where loans would be needed.
Work more! If you think you work a lot – think again. Keep a journal of what you do with your entire day for a week. Do you really work as many hours as you could? I don’t. So if I really need the money, I could work more.
If you’re even close to broke – work more! Have some side hustles so money is flowing in more than just twice a month. Think getting another job is hard? Most of you reading this live in North America. Making money in North America is easy. If you ever think that’s not the case – would you rather try finding work in Africa? Didn’t think so. We have it good.
There’s always hope to create more money for yourself. Always.
Sell your stuff! Before a payday loan I would sell dang near everything tied to my name! Heck, I’d sell the nonessential parts of my car before I’d take out a loan at 300%! Most people think a person needs a lot of stuff to live. Not true at all.
The role predatory lending should play in your life
Right now I’m reading a book by Napoleon Hill called Think and Grow Rich. Hill tells a story that has been stuck in the front of my mind…
“A long while ago, a great warrior faced a situation which made it necessary for him to make a decision which insured his success on the battlefield. He was about to send his armies against a powerful foe, whose men outnumbered his own. He loaded his soldiers into boats, sailed to the enemy’s country, unloaded soldiers and equipment, then gave the order to burn the ships that had carried them. Addressing the men before the first battle, he said, “You see the boats going up in smoke. That means that we cannot leave these shores unless we win! We now have no choice—we win—or we perish!”
Hill: “Every person who wins in any undertaking must be willing to burn his ships and cut all sources of retreat. Only by so doing can one be sure of maintaining that state of mind known as a burning desire to win, essential to success.”
In relation to predatory lending – I consider the shipped burned. Taking out a loan with them is not even an option for me. I have erased them from my mind. I don’t leave them in the back of my mind thinking, “Just in case…” I’ve said, “No!” There’s no way on earth I will deal with one. In my mind, all the predatory lenders are on a ship that’s sitting on the bottom of the ocean. Courtesy of me and a matchbook.
So as much as I’ve loved telling you a bit about predatory lending – the important take away is to forget all of it. Pretend they don’t even exist. Sink them before they sink you.
-Will Lipovsky, FirstQuarterFinance.com
P.S. Sorry this post isn’t too funny! So here’s a money joke for you… What’s the cheapest kind of meat…? Deer balls. They’re under a buck! Oh, the sophistication of my humor.
Image courtesy of Maersk