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Comment by jiggy2011 | Hacker News Reader

jiggy2011

Entirely agree, when you are poor your biggest problem is not actually quantity of money. It's the flow of money.

So the problem is often not "I have £50 to plan food for the rest of the month" but "I have an unexpected expense and now I have £2 I found behind the sofa and a bare cupboard/fridge to feed myself until I get some more money".

I also found that when I am poor I am much more reluctant to go out and buy in bulk. Even though it would at least give me food enough to last, there's something scary about blowing your entire budget in one go.

If you are poor it is also harder to get to places that sell things cheaply in bulk (because perhaps you don't have a car) and you are more likely to get things from a corner store as needed where there is a higher markup on prices.

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The poor also make bad financial emergency decisions like using payday loan companies and loansharks, so a significant amount of their actual income just goes to paying off debts.

I lived in the "poorest postal code in Canada" and it was full of guys who traded food to each other like they were still in prison. If you didn't pay the huge interest payments you found yourself assaulted, unable to work, and deeper in the hole

I don't think it's necessarily poor financial decision making that leads to payday loans. If you are poor you are unlikely to qualify for a regular loan and you might not have family who can lend you the money you need.

If you find yourself with a week until payday and £0 in the bank it may be difficult not to consider the option.

Yeah, this is an important point. When I said bulk, I meant £10 of stuff, rather than the massive quantities you can get from Amazon.

I think instant pay day loan companies like Wonga have done a lot for the cash flow problem. Personally, I've never used them, but if you have a bill and need to avoid a £50 late penalty, you can get a $100 loan at 1% interest a day, which is a brilliant value proposition if payday is a week away. I've seen a lot of criticism of these companies, but I think it's from people who don't understand the problem.

1%?? Lol they charge 150% where I live until the regulators clamped down on them and class action lawsuits happened. Now it's $50 maximum per week they can charge, but they get around this with NSF fees and late charges.

They also hit bank accounts with EFT withdrawal up to 3x per day if the first one didn't clear, which is $40 NSF charge each time. Unfortunately because these lenders signed a piece of paper allowing for automatic withdrawal, the payday loan company then steals all your money the day before you are paid, so your account will be debited -$200 for a $100 loan you missed a payment for, factoring in all the NSF and late charges. Since most people are paid with direct deposit nothing they could do to stop this. Bank will also charge interest on the overdraft.

So on payday you have nothing, and are forced to go back to the payday loan company just to survive but are now paying even higher interest, because you defaulted once. Sounds like they are well regulated where you live but not here they are still loan sharks.

1% a day is 360% a year, which sounds very high, but is less than missing a payment sometimes. You would use them when it made sense, and borrow an amount that you could pay back. Many people are paid weekly, so it might cost £5.

Things were very bad in the UK until recently, and in many ways still are, but the companies have come under a lot of regulatory pressure, and are being... better. I'm afraid that sometimes you have to choose between 2 evils.

People are not dumb, and 1.2 million (3/100th the population) took a payday loan in 2009. You could credit a lower number to individual poor judgment, but these are rational economic operators borrowing small amounts at high interest rates to avoid hunger or larger losses due to cash flow problems.

WONGA, one of the most popular in the UK quotes APR of 4214%!

Of course that sounds worse than it is because the loan is short term.

Still though, I wish there was a more reasonable solution to this problem. I wonder how much of these rates are due to the risk involved in loaning to the sort of people who take these loans and how much of it is "because they can".

I believe that's the real tragedy (the last phrase)

My bet is that most of the people that use these services couldn't make a simple interest calculation

Most of these sites will show the amount of interest due so I don't think it's so much that issue as it is the issue that taking out one of these loans increases the chance that you will need to take out another one of these loans the following month which is a much harder calculation to make.

If you go to www.wonga.com, you can fiddle with the sliders and see how much a payday loan costs in the UK. For instance, if you borrow £100 for 10 days, you're paying back £115.91, which is just over 1% per day. I can definitely imagine someone accepting that to pay for an urgent cost.

I expect that if you don't repay when you agreed, though, you're going to end up paying a lot more.

150% a DAY??

And the loan companies cry that it makes them impossible to do business if they're capped at still wholly usurious rates.

Payday loan companies are f'king evil and ruin peoples lives.

>but "I have an unexpected expense and now I have £2 I found behind the sofa and a bare cupboard/fridge to feed myself until I get some more money".

It seems that the most common of these unexpected expenses include automobile related repair expenses (which come once every few years that even the best of us tend to forget to budget) and health expenses. Are there any others that come to mind?

Of course, automobile and health costs are the ones that are typically mitigated by insurance to some degree. Oh and what do the poor in countries like the United States rarely have? Insurance.... :(

If you are very poor, even smaller expenses like a power bill that is higher than you expected, having something that you rely on break (maybe the HDD in your computer fails and you relied on using your computer for some portion of your income) or you get a hole in your only smart jacket etc can throw a spanner in the works.

And the poor are typically the people who need a car the most, because they don't live in neighborhoods well-served by public transit.

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