Advance America, Cash Advance Centers (AEA)

NickVDallas (92.52) Submitted: 6/23/2009 4:22:30 PM

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While I am not a fan of expensive loans, I heard (CNBC probably) a good rebuttal to the arguement that payday lenders charge immorally high interest rates.
If a person takes a $30, one-week loan and pays $9 for the privilege, it looks crazy on a percentage basis. But if that same person bounces a $30 dollar check and has to pay his bank a $39 bounce fee, that is clearly worse on both a percentage and dollar basis. The payday lender is required to state an APY for his transaction, while the bank is not. Hence the reason that the payday lender appears to be charging an immorally high interest rate, when in fact it is much lower than the likely alternative.
As much as I hate to admit it, these businesses do offer a service that, under certain circumstances, is better than mainstream financial institutions, and may be a least-bad option at times. I do pray that I am never in a position to need one myself.
(Disclaimers: I do not remember the actual numbers used in the example I heard, just the jist of the rebuttal. I also am not endorsing the use of payday lenders.)