Update May 2009: New restrictions on payday loans have driven many locations out of business, while others scramble to find ways to skirt the laws. Notnetheless, for many people who need that one-time bridge loan, these businesses still serve as a last resort.
Somehow I've managed to become WalletPop's poster child for payday loans. I wrote about my experiences with them a few months ago, and then quickly wound up being asked to write a little series about payday loans (the series is at the bottom of the page of just aforementioned post). And now that we're doing a "raising cash in a hurry" series, what does my editor suggest I write about? You guessed it.
It is true, though, that earlier this year I went to a payday loan store. Not once. Not twice. But three times. And in those cases, I was able to get cash in a hurry -- faster than most of these other ideas we have, I'll bet. But that doesn't make it the best of the ideas.
I'd call it one of those last-last-last resort methods, but I have to give the payday lending industry its due, it is quick. Once I made my decision, it took me about 14 hours and 20 minutes to get my money.
That is, it was 14 hours because I made my decision and then slept the whole night, nibbled on breakfast, did some work and then drove out to a payday lending store near my home. Once I went through the doorway, the whole process took maybe 20 minutes, and on the subsequent times, perhaps a five minute visit each.
In my case, I think it was the best plan I could come up with. I knew I had money coming, and that I'd be able to pay it back. Some magazines were simply very slow in paying me for articles I had written months earlier, my credit cards were maxed out, and I didn't like my options: humiliate myself on the altar of the Bank of Mom and Dad or further deplete my depleted savings.
But it can be a dangerous strategy, of course. If you're on a fixed income, and you borrow $300 and know that in two weeks when the money comes due, you'll have to pay back $345 (which was the case with me, anyway), that means you have to account for the fact that your next paycheck is going to be $345 less than what you're used to. That can be a problem. You may fall short of money sooner than you expect. You may decide you need some cash. You may decide to go to a payday loan store.
And on it goes.
And so it did for me, enabling me to go three times in about two months before enough checks of mine had arrived that I was back to a receiving a steady revenue stream.
If you do feel like you have no other choice than to visit one of these establishments, make sure to take along proof of employment, which can be tricky if you're self-employed, but it's still possible -- just bring lots of documentation. Obviously, regardless of your work situation, take along a photo ID like your driver's license.
Sure, given the payday lending industry's reputation, it may not feel like the best road you can take. But it's a perfectly legal one. I'm still trying to figure out why payday lending is perceived as such a worse option than plastic, with its universal defaults and variable interest rates that can also, if handled improperly, destroy your credit.
Bottom Line: If you're responsible with your money and know that you're facing less than two weeks of a cash short fall, borrowing $300 today in return for repaying $345 in two weeks may be a good idea. If you're the sort of person who has a continual spending or money management problem, this is the dumbest thing you could possibly do.
Geoff Williams is a business journalist and the author of C.C. Pyle's Amazing Foot Race: The True Story of the 1928 Coast-to-Coast Run Across America (Rodale).