(Photo Credit: Bob Haarmans/Flickr)
Truthout reports that these new workplace loans are a new form of an old, and very bad, idea known as "company store loans."
A Loan Is Not a "Service" or an "Advance"
Predatory lenders are teaming up with less-than-exemplary employers and offering the "service" of a workplace loan. The people who benefit from the service are the predatory lenders.
An employee requests an "advance," but it's not really an advance. An advance is paid back without interest or fees. The payments come out of employee's paycheck. This is likely billed to employees as a service, because workers don't need to worry about making payments on time. It is a terrible idea, however, because employees now have even less cashflow than before, and will likely need another loan, and so the cycle of debt continues.
If your employer is offering a new "service" which "makes it easier for you get an advance," be wary. It's not an advance, and it's not a good deal. Avoid workplace loans.
Ask About Fees and Interest Rates
Never take a loan unless you know the interest rate, or APR. According to the Wall Street Journal, federal and state regulators are currently concerned about the lack of transparency in communicating interest rates and fees to those who might take out workplace loans.
Many workplace loans are paid back within one or two weeks, but just because you have to pay back the loan quickly does not mean a usurious interest rate makes sense. Truthout quotes workplace loan APR interest rates as high as 165 percent. That is on top of fees ranging from $8 to $25 for a $150 to $500 loan. Anybody who can afford to throw that much money away doesn't need to borrow money.
The problem is that many people don't understand exactly how much money they are spending for the privilege of a loan, and predatory lenders want to keep it that way.
Tell Us What You Think
Are workplace loans available in your area? We want to hear from you! Leave a comment or join the discussion on Twitter.