So, remember that problem I talked about? This guy Tony was gonna get a paycheck advance loan. Here’s the deal:
Tony wanted a loan of $200. So they wanted him to write a check for $230, dated 2 weeks in advance. He can pay back the $230 or they’ll deposit his check. It’s only thirty bucks, Tony said. (Yeah, that’s why he’s broke.) But what kind of yearly interest are they charging?
The loan is for 2 weeks. There’s 52 weeks in a year. So the yearly interest rate is 26 times the percent interest he’s paying. (Get it? There’s 26 x 2 weeks in a year.)
Compare that to 20% yearly interest on a credit card.
He’s paying 230 bucks for a 200 loan. So he’s paying 30 bucks interest. Not cool. Cuz what percentage is that of 200 bucks? To figure it out, I take a short cut. See, 10% of 200 is 20 bucks. (200 x .1 = 20) So, I figure 5% (half of 10%) is 10 bucks (half of 20 bucks). That means 30 bucks is 10% plus 5%… 15%.
I can do all that in my head, see? But if you want to do the math, it’s like this:
30/200 = .15 or 15%
Fifteen percent interest don’t sound too bad, right? But that’s only for two weeks. To get yearly interest, you gotta multiply it by 26.
15% x 26 = 390%
Three hundred ninety percent! Almost 400% interest! I told Tony, you gotta get a credit card. You pay, what, 20% interest? Plus, if you pay it off when you get the bill in a few weeks, which is the smart thing to do, you don’t pay no interest at all. Just like a payday advance, but you’re payin’ nuthin!
Course, it’s dangerous to run up a big credit card bill. And Tony can’t trust himself. So I told him to get a card with a small limit, like $500. That’ll cover him for emergencies, right? Without him gettin’ ripped off too bad. He said, “I ain’t got no credit,” and I told him to call some credit card people. Try to get a card with no fees. Here’s some information I found. Some of it’s for college students, but hey, they’re in the same boat, just getting started with credit cards.
Just see what to do to get started, cuz what’s the point in paying all that extra interest?