Our goal at Peoples Bank is to provide access to personal and business banking services and help the people in our community through quality services and outstanding customer service.
Imagine you walk into a bank to ask for a loan—nothing too much, just $400. You know you’ll have to pay a bit of interest, but it probably won’t be too much.
You give the teller your information, and she hits a few keys on her computer. “Four hundred. Let’s see…” She looks up at you and smiles. “That’ll be 150% interest.”
Does that sound like a deal you would want to take? Of course not! Who in their right mind would ever take a loan at an interest rate of 150%?
But believe it or not, thousands of people take this deal every single day—not from banks but from payday loan companies. These companies promise you a quick loan now that you’ll repay with interest at your next paycheck. This might sound helpful, but it’s just about the worst financial decision you can make, because the interest rates at these businesses are usually insane. They often charge not 150%, but instead 300%, 400%, sometimes even 500% interest on a loan.
Payday loan businesses are like predators, prowling for those who need a quick buck. They take advantage of those who are most vulnerable.
Why would people take such an awful deal? Well, the short-term nature of a payday loan hides how high the interest rate is. A typical transaction might be them giving you $400 now in exchange for you paying $450 in two weeks.
That may not seem too bad—it’s just $50 of interest. But that’s $50 after just two weeks, and interest rates are calculated yearly. For example, banks often charge as little as 4 or 5% interest on a loan for a house. That’s 5% interest after one full year. So, if you took out that loan of $400 on 5% interest, you would only owe $400.77 after two weeks—$49.33 less than what they payday loan business would have charged. With 5% interest at a bank, you’d only owe $420 after a full year.
But imagine if you waited a year to repay the loan you got from the payday lender. After two weeks, your $400 would have accumulated $50 of interest for a total of $450, but after an entire year, you would owe $1,700! This is more than four times what you originally borrowed.
And that’s with an interest rate of “only” 325%, but some payday loan companies charge as much as 500%. If you borrowed your $400 dollars at that interest rate, you would owe a crushing $2,400 after a year. While people usually don’t wait this long to pay off a loan from such companies, frequent borrowing from them can still cost you an astronomical amount.
This is why payday loan companies are often referred to as predatory lenders. They make their money by scamming the financially vulnerable who don’t realize that they have better options.
If you’re in desperate need of money, don’t go to a payday loan. Instead, cut your expenses to the bone until you can build up an emergency fund. Stop going out to eat. Cancel your cable and even your internet if you have to. Consider getting a 2-year Associates Degree online that can help you find a higher paying job, like nursing. In Tennessee, you can often get such degrees for free.
Payday loan companies want to keep you in poverty, charging you massive interest rates until you’re drowning in debt.
Don’t let them.
Our goal at Peoples Bank is to provide access to personal and business banking services and help the people in our community through quality services and outstanding customer service.
Proudly Serving East Tennessee
NMLS ID# 450164
(423) 442-7262
