by Patrick Appel
A reader writes:
A good friend of mine got sucked into the payday loan scam a while back. They had some medical bills and things got tight so they borrowed $600 from a payday loan place. The terms of the loan were as follows:
- The loan had to be paid off in full all at once. So in any given month you were not permitted to pay down any fraction of the principal. You had to come up with all $600 all at once.
- The interest rate on the loan was 50%/month. So to keep the loan current it mean paying $300/month.
This of course meant that they would have to be able to scrap together $900 in any given month in order to pay off the loan. Given that they were struggling to get $600 together in the first place, getting $900 all in one month would have been a stretch. Paying the $300/month was painful but doable, but the problem was that they couldn't get out from under the loan because they couldn't get all of the principal together in any given month.