Payday ABC Loan Review
Published by brettbum March 6th, 2007 in saving money, personal finance, finance tools, debtPayday ABC offers a website at PaydayLoansABC.com. It provides people with the ability to search out payday loan solutions.
Payday loans are loans provided to people based on a paycheck or paste and typically do not require a credit check. However, credit checks are sometimes used. Payday loans often charge very high rates of interest typically more than 20% sometimes as much as 30 or 40 or 50%. They should not be confused with the notorious rapid refund loans that come from companies such as H&R Block, which can add up to 400-500%. However due to the way that they can be compounded the charges for payday loan can add up very quickly.
Typically the loans are small in size you are from $100-$500. They can sometimes go higher than that up to a couple thousand dollars. Usually those types of loans aren’t offered unless it’s in conjunction with a income tax return.
Payday loans are generally used as a last resort often times utilized by people that are in desperate need of cash immediately or on the verge of bankruptcy. People that do not have bank accounts also utilize check cashing services and by extension will sometimes in essence get their checks cashed early. This usually happens when unexpected expenses come up throughout the month.
Payday Loans ABC provides access to two different loan networks. One is the Cash Advance Network, which is an entirely separate site.
The second network is the Extra Payday.com Network extra payday.com offers cash advances up to $1500 while the cash advance network is up to $1000.
There is also a state directory that can be utilized to find payday loan services.
All in all the site provides access to networks that can enable a customer to find a loan service. Payday loans are a tool, and it is up to the borrower to be very careful with that tool as it is their credit and their finances on the line.
Disclosure: This is post is a paid review via ReviewMe. All care was taken to offer constructive criticism, but a positive angle is not a requirement of the review process.
“Notorious rapid refund loans”? I think you might have your facts backwards. On a per hundred dollar cost basis, the typical RAL costs a “one time” 3-5% fee (bank setup + finance charge) of the amount requested. Comparitively, the typical payday loan, as you’ve said, can cost a one time ” 20-50%” of the amount requested. I generally give the benefit of the doubt and say 15% (or $15 per hundred). The average RAL this year is around $3300 and a typical cost for that is $121….or 3.66% of the amount requested. That’s $3.66 per hundred. That doesn’t sound so notorious. It is when you impute BOTH types of loans on a annual basis as the Truth In Lending Laws require that the distortion to triple digits occur. I’m not picking on anyone’s particular industry. RALs and payday loans aren’t for everyone but they do serve a need for many people in need. Pitting them against eachother is not the way to go, especially if you misrepresent the facts. Thank you.
Hi Joe,
I do appreciate your comment, but I do have my facts straight. To site your example of a RAL a refund of $3300 paying $121 in interest, would be a cost rate of 3.66%.
However, cost and interest rates are totally different.
That is $121 paid for a loan that is usually at the longest 3 weeks (about 10 business days). When you look at the annual percentage rate of paying $121 on a $3,300 loan for 3 weeks, that interest rate is 63.56%. If the filer gets their refund back in 2 weeks, then the APR is 95.33 percent.
I spoke from direct experience as I formerly prepared taxes for H&R Block, which along with Melon bank has faced several lawsuits on this issue.
I did find a statistic for 2005 citing an average refund amount of $2,150 and a charges ranging from $29 - $120, which is an APR (annual percentage rate) of 40% - 700%. (http://pnnonline.org/article.php?sid=7253 or get the actual report in pdf http://www.consumerlaw.org/news/content/2006RALReport.pdf )
If admin fees are added to the cost and the calculation of interest, then the APR balloons to 1800% see http://www.consumerfed.org/pdfs/RAL_2006_Early_info.pdf )
Many people often think, that it is illegal to charge interest rates that high. The truth is its illegal for banks that are incorporated in some states to charge those rates due to usury laws. However, if those banks are incorporated in Deleware or South Dakota, states that do not have limits on interest, then it is legal.
The cost up front for a RAL, may seem small in comparison to the amount of the refund, however as an interest rate (RAL stands for Rapid anticipation Loan ) it is very high.
In the example you provided, if the bank was charging 20%, then the final charge would be $41.25 on a 3 week loan of $3,300. $121 is about 3 times higher.
A person with a credit card, would be better off almost writing themself a convenience check for $3,300 (so they could have the money right away) and then paying their credit card off with the actual refund when it comes via direct deposit after they efile.
Don’t get me wrong, I’m not advocating the use of a convenience check, but to compare, if they have a 20% interest rate on their card, they would pay $42.25 in interest. Even if they had to pay the higher $75 max fee for the check, their total cost would still come in at $117.25, $4 less than a RAL under the given info above. Plus, they might be able to get reward points, or get a teaser rate at 6% (taking their interest charge down to $$12.375 + 75 = $87.375 Total!)
Bottom line is that interest rates are based on time and are not computed by ignoring the time factor. Interest Charge = Rate x Time x Principal.
$121 = Rate x 3 weeks of a 52 week year x $3300
$121=Rate x 3 x 3300
————————
52
$121×52 = Rate x 3 x 3300
————- ———————–
3 x 3300 3x 3300
(121×52)/(3×3300) = Rate
63.56% = Rate
Here are some more resources providing information on RAL’s
http://en.wikipedia.org/wiki/Refund_Anticipation_Loan
Note this USA Today article cites that people receiving the Earned Income Tax Credit (an anti-poverty credit) paid $1.24 billion for RAL’s.
“They paid an estimated $1.24 billion in refund-anticipation loan fees for 2004″
That’s a lot of money being taken away from the poor, for a tax credit that they could receive for free, if they utilized the IRS free e-filing tools.
Its not just H&R Block, Jackson Hewitt Settlement
http://ag.ca.gov/consumers/content/jacksonhewittrefundfaq.php?PHPSESSID=1c06fdb60e9c133b255e9bca0ca237a9
USA today link from September 2006
http://www.usatoday.com/money/perfi/general/2006-09-17-refund-loans-usat_x.htm