Payday lenders offer consumers an easy way to bury themselves under mounds of debt. The typical payday lender allows you to walk into their establishment, turn over a personal check that’s postdated to your next pay date and walk out with cash — minus some high fees.
Why payday loans are such a bad deal
What exactly do payday loans cost you? Try 300%, 400%, or 500% as an annualized percentage rate! Consumer Reports once featured an article with mention of a high school principal in Albuquerque, New Mexico, who paid more than 600% APR on a payday loan!
Some states like Ohio have capped the interest rate at 36%, which has effectively driven payday lenders out of the state. But some payday lenders are getting around restrictions by making loans over the Internet.
The military has long had a problem with soldiers not being allowed to deploy because they couldn’t get security clearance after their finances were fouled up by payday lenders. So Congress had to cap the loan rates to soldiers and their families at 36% as well.
Some credit unions are now coming up with short-term loan programs to siphon business away from the payday lenders. One credit union even bought a large payday lender and is trying to figure out how to best offer convenience and reasonable rates.
Employers step up with payday loan alternatives
Employers who worry that the effectiveness of their cash-strapped employees will be sapped when the workers feel the stress from taking out a payday loan can now do something about it: Lend them the money themselves!
There are several companies I’ve talked about in the past that offer a way to let employers make short-term loans to employees at one-fiftieth to one-tenth the cost of a payday loan.
FlexWage.com and EmergeWorkplaceSolutions.com are a couple of companies that make this seamless for those employers who want to participate. Employers don’t lose money on these programs. The programs just protect employees from being financially destroyed by the scum in the payday lending industry.
Cleveland.com reports there’s a new option for employed called TrueConnect. Through TrueConnect, the payday loans have just 24% interest on amounts ranging from $1,000 to $2,000. Borrowers need to be on the job for at least 90 days and be signed up for direct deposit of their checks. (Employers aren’t on the hook for any money if the loan defaults.)
If you’re an employer, take a look at these opportunities. It costs you nothing, but it could help keep your employees out of harm’s way.