In this episode we’re talking about some very specific types of debt that can severely damage your finances.  You’ve probably heard of payday loans or title loans, rent-to-own, or similar types of loans.  Well,... we’re going to dissect these type of loans and share how they work so that you can be better informed and hopefully avoid them and the danger they pose to your financial well-being.


Payday loans

A payday loan is essentially an advance against your next paycheck. You give the payday lender your pay stub as proof of income and tell them how much you want to borrow. They give you a loan for that amount, which you're expected to repay when you receive your paycheck.

  • Advertised for people with:

    • Bad credit.

    • Quick need for cash.

    • People in a pinch.

  • Typically pay 15% - 30% of what you borrow using your next paycheck.

    • If you borrow $100, then you write them a check for $130 and hand it to them to take out of your next paycheck.

  • Which can equivalate to 100% - 700% annual rate of interest.

  • Here’s a quick example:

    • Borrow $1,000 on a 6-month loan.

    • 300% interest rate.

    • Monthly payment = $338.82

    • Total cost = $2032.92

  • Most common complaints

    • Lender charged fees or interest that I didn’t expect.

    • “They are taking money from my bank account without permission.”

    • “I’m making payments, but it’s not lowering my account.”

    • “Extent the loan fee.

      • Example: $100 Loan = $15 charge for the loan.

        • Now imagine a $900 loan with a $135 loan extension fee, which is simply $15 per $100. The person keeps rolling over the loan by paying the $135 each month, the borrower thinks they are paying down the loan and will be done in 7 months by paying the $135, 7 times. However, they have simply extended the loan 7 times and still owe the entire $900 even though they’ve already paid over $900 to the lender in the 7 months.

        • If you roll the loan over 4 times, then you pay $60 in fees for the $100 loan, plus the interest that has accrued on the loan at about 450% APR.

        • $15 - loan extension fee if you don’t pay if off in 14-30 days depending on the type of loan.

  • Median online payday loan cost is $23.53 per $100, which is a 613% annual percentage rate. If the rate isn’t paid in full on the first payday, then the loan extension fees allow them to keep the loan, but as they pay the fees, they don’t actually pay down the debt, just simply keep it going.

Title loans

  • Requirements

    • You own the vehicle clear from liens.

    • Steady source of income.

    • Not in bankruptcy or coming out of bankruptcy.

  • Similar problems as payday loan & fast cash places, high interest keeps you stuck in the cycle.

  • Plus, if you don’t pay, then they take away your car, which may be your only means of transportation to work, so they threaten your ability to work if you don’t pay by taking your car away. This added fear causes people to agree to crazy payments and high fees for the opportunity to extend the loan, because they are trapped by the debt.

Rent to own


  • Buy it Now Price: $999.99

  • Rent-to-Own Price: $1,759

  • Interest Rate: 60%

  • Lowest Price Found for Same Product (new): $499.00

New Full Refrigerator

  • Buy it Now Price: $1,299.99

  • Rent-to-Own Price: $1,999.76

  • Interest Rate: 60%

  • Lowest Price Found for Same Product (new): $699.00

Newest PlayStation System

  • Buy it Now Price: $299.99

  • Rent-to-Own Price: $839.88

  • Interest Rate: 33%

  • Lowest Price Found for Same Product (new): $249.00

Rent-to-Own a Home

The Basics

  • Renting to own a home is somewhat similar to a car lease.

  • Seller gives his tenant the right to buy the house at some point in the future, usually one to three years out, for a price that is agreed upon today.

  • Tenant will pay a fee, called option money, that will keep open the option of buying.

  • A 20% premium above the typical rent for the house is paid by tenant, with a portion credited to the tenant for an eventual down payment.

Things to know and be aware of

  • If tenant decides not to purchase the house at the end of the rental term, none of the extra money that he paid to the seller comes back to him.

  • Tenant pays above market value for a rental, which is lost in the end.

  • Unlike in traditional rental scenarios, the tenant is often responsible for repairs and maintenance during the lease term, and any money or sweat equity you put into the rent-to-own property will not be reimbursed.

  • Scammers will target people that they know won’t be able to qualify for a loan, and they will charge the premium on the rent, knowing that they will not have to sell the house to the person at the end because they can’t afford to buy the whole home in the contract period.

  • Scammers may also try to lock you in to require you to buy the house at the end, or else you pay a major fee to get out from the contract. They knew you wouldn’t be able to buy it, but they put in the contract another large fee if you fail to fulfill the contract.


Debt Payoff Plan
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The Yearly Budget