ShmoopTube

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finance a la shmoop what are payday loans well this you want to stay away

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from payday loans if you are so strapped for cash [girl gives out payday candy bar]

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that you need to borrow money to pay the rent and you only have the promise of [hand takes money and leave I.O.U. sticky note]

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your future paycheck to borrow against well something has clearly gone wrong [girl looking through papers]

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along the way and you shouldn't trust the snazzy-looking television [TV add for loans]

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commercials you're seeing out there a payday loan is a loan using the promise

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of delivery of cash on your payday cheque as collateral and for most

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companies loaning money on payday this is an extremely profitable business

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because they quote only charge you 2% unquote for the loan but let's do the

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math you're getting the cash two weeks early and last time we looked at a

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calendar there were 52 weeks in a year or 26 bimonthly pay periods so if

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they're charging you 2% to lend you money for one of those bimonthly pay

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periods well their annualized rate that they're charging you for lending you

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that money well that's 52 percent a year right 26 times 2% it's 52 percent a year

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even the worst credit cards charge dramatically less than this rate of

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interest so how do payday loan places get away with such high rent on your

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hard-earned money well if you have to borrow money in this form with such

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urgency well you're likely a very bad credit [woman sends man out to pay grandma]

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risk and the perceived odds of you simply vanishing are well they're high [man gets into car with suitcase]

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and the odds you are financially unsophisticated are almost by definition

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certain because if you did do the math you get even an expensive credit card to

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float you the thousand bucks or whatever your paycheck was or five hundred

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dollars for that half month period to just get by until the next month right

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so if you ever find yourself needing a payday loan let's hope you can work a

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few long weekends saving enough money so that you don't need these things anymore [man working on computer]

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and next time well you know what they say stay in school [school kids collaborating on project]

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