Since human beings have used currency there has been business in lending money to another individual. Interest is the profit that a lender makes on the loan that they provide, yet charging interest has always been seen as somewhat morally dubious. Banks and credit unions both charge interest from their loans, as do investment firms, and even the United States Federal Government. Because of potential risks it is always good to approach lending money with a bit of skepticism: is there a good reason for the loan? Will I be able to repay my loan in a timely manner? This is not financial advice about your specific situation, but we do advise everyone to avoid - the payday loan.
A payday loan is a relatively low sum of money borrowed at an incredibly high interest rate, that is intended to be paid off by the time the borrower receives their next paycheck. It is easy to see the appeal of this type of thing, especially if you find yourself in a desperate situation with your children, car, or are facing losing utilities, or even eviction. The problems with this type of loan occur in the short term decisions we make in the most desperate times. When you take out a loan with interest you are lending from your future self, and that future self is also struggling to pay bills! If you are unable to repay the entire loan on your first check you are charged exorbitant interest while still dealing with the financial difficulties of your everyday life. This can then lead to other things getting dropped in favor of repaying the interest, and you are right back where you started, except it is worse now because you owe money to a different lender as well!!!
It is also important to note that it is not a coincidence that people in desperate situations are drawn to payday loans, rather these types of loans specifically exist to prey upon them! No matter what you read in financial literacy literature, or what messages are reinforced by popular media, debt is not a moral failing.
Some good news: Many states have already begun to put in protections for potential lenders from such institutions. Right now in Wisconsin several such bills are being discussed in congress, one of them would cap interest rates at 36% (currently these loans average about 574% interest.) If you or someone that you love has experience with these types of predatory lenders and would like to provide your testimonial to the law makers, we have prepared a two-minute survey you can fill out that we will then send to Representatives with your testimony.
And if you are trapped with debt from one of these institutions you can reach to Legal Action Wisconsin for legal assistance.