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The first thing he said is that payday loan shops don't charge a huge APR, they charge a flat fee for getting a payday loan, often $20 or $40 on a $500 loan. T
by jfager 16y ago
The first thing he said is that payday loan shops don't charge a huge APR, they charge a flat fee for getting a payday loan, often $20 or $40 on a $500 loan.
That's 5% to 10% of the loan amount, however, if you average that to APR you get a crazy %, something in the low thousands, like 1000% or so.
In the case of ZestCash, they offer a minimum 2 month loan term. Their fee on $500 in that period isn't $40, it's $219.12, and I can't find any indication on their site that you can pay it off early to avoid accruing additional interest. It's similar to a credit card that forces you to only make minimal payments.
Edit: I also don't think enough attention is being paid to the two other major points I tried to make in the post, that ZestCash is using some shady tactics to try to convince the unsavvy consumer that they're getting a much better deal than they really are, and that all of the coverage from major blogs was surprisingly positive given such a controversial space, and that none of it mentioned ZestCash's actual rates despite implying that their model represented a significant improvement over payday loans.
- mattmcknight 16y agoSlightly unclear on two counts. The site says, "We will never penalize you for paying your loan off early. By all means, be our guest!" https://www.zestcash.com/how-it-works/zestcash-loan-fees https://www.zestcash.com/how-it-works/zestcash-loan-fees The origination fee is 30%, $150. It seems a little high, but if you end up extending the term, it lowers the impact of the interest rate. What you seem to be missing in your analysis is that payday loans are typically a 14 day term, whereas these can be stretched out to 6 months, which gives people a more reasonable chance of paying it back without having to roll it over and incur new fees. In a typical payday loan scenario, you'd be paying the origination fees every two weeks...
- jfager 16y agoThanks, I missed the sentence about early payments when going through the site before. In a typical payday loan scenario, you'd be paying the origination fees every two weeks Saying that ZestCash is significantly better in this regard assumes that a person taking out multiple payday loans in a given year isn't going to be taking out multiple ZestCash loans in a year. While there are certainly some reasons to guess that might be true, there's simply no way to make that claim for certain. You've already shown that you're better at going through the site than I am: do you see anything saying ZestCash won't let someone take a second loan while they're repaying a first? I should also point out that my arguments aren't centered around the idea that ZestCash's model is worse than or just as bad as payday loans. You can be better than a payday loan and still be Not Good. And what's actually making me angry is how ZestCash is marketing itself. As another example: on the "A Word From our Founder", Merrill descibes payday loans as bad because "they are very expensive, charging more than 400% interest in some cases." - completely ignoring the fact that ZestCash charges more than 400% interest itself.