Payday Lending, Part I: if you have to do it, how to do it

Admitting that I took out a payday lending loan isn't exactly something I'm proud of. I imagine it ranks down there with confessing to friends that you took your sister to the prom.

But since I'm admitting I became a payday loan customer earlier this year, I thought I'd give everyone a sense of what to expect if you find yourself in a similar situation. Hopefully what I'm about to tell you will help you know what you're in for.

How to know where to go: I'm not an expert on this, having only gone to one place, but I simply looked through an online phone book and picked out a national payday lending establishment that had a branch within a few miles of my house. I know that there are online payday lenders with no brick and mortar stores, but I know nothing about them, and I figured if I was going to wade into the sleaze, let's make it the most reputable, nationally-known sleaze possible.

What you need to bring: Well, photo ID for starters. I'd call ahead first and ask, since every establishment is different, but chances are, you'll just need your driver's license and some recent pay stubs to show that you're gainfully employed. If you're self-employed, it's more difficult to borrow but still possible. Again, you need proof of income, quite a bit more proof than an employee with a boss and a W-2.The money: You've probably heard that borrowers typically face annual interest rates of 350-650%, and, yes, this is true in the technical sense, but you're not borrowing money for a year, so that's a little misleading. You're borrowing cold hard cash that you're expected to pay back within two weeks. Basically, for every $100 you're given, you will owe the payday lender around $15 to $30. And so when I borrowed $300, I knew that two weeks later, I would owe $345.

That $45 is 15% and, indeed, it's a risky gamble, in the sense that if you're only going to receive, say, $600 in the next two weeks, you already know that over half that paycheck will go back to the payday lending establishment. Consequently, your odds of having to go back to the payday lending store certainly increase. If you're caught in a cycle of debt, and you know you can get a payday loan pretty quickly, it seems crazy not to go get the money -- and equally crazy to go and get the money.

How the transaction is handled:
At least at the place I went to, I wrote a check for $345. If I had felt comfortable paying the money back anytime within two weeks, if I had wanted to, I could have gone back to the payday loan establishment and given them $345 in cash and "bought" my check back. Otherwise, you let the check go through.

More about the dangers: As financial experts will tell you, these places are a debt trap, and I briefly fell into it, as I feared I would. Within the span of two months, I went four times to get a payday loan because, of course, every time they took their money back, $345 disappeared from my bank account. Plus, I had experienced the zeal of receiving cold hard cash when I needed it. The first time had been hard going in; the second and third time, not so much. But on each occasion, I had the choice between putting cash in my bank account or letting it possibly slip into overdraft territory, and I'm convinced that the $180 in interest that I paid outweighed the benefits of being hammered by bank fees. Still, over the course of two months, I paid $180 to receive $1,200 of my money earlier than it was coming to me. Again, that's 15% of those wages. Or to look at it another way, since I constantly was borrowing to reclaim the $300 that I kept giving back to the payday loan store, you could argue that it turned out to be around be closer to the neighborhood of 50% interest. So I'm not about to suggest that this is a great financial plan for the long-term.

Going into the payday loan place: I hate to admit it, in a way, but everyone was very nice. Sweet, middle-aged women behind the counter. No thugs by door, looking like they might break my kneecaps should I not be able to come up with the money on time. It was a clean, quiet lobby, though it was nowhere near as professional and bank-like looking as they'd have you believe in some of the TV commercials I've seen. And I'd be lying if I didn't admit to feeling a sense of relief and gratitude when I was given the money, and when my check safely sailed through each time.

In essence: These are nice enough places to visit, but it's the type of place you hope you'll never, ever have to visit again.

Geoff Williams is a business journalist and the author of the well-reviewed (but obviously not a bestseller) book, C.C. Pyle's Amazing Foot Race: The True Story of the 1928 Coast-to-Coast Run Across America (Rodale).

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