It sounds like a great idea: Get the cash that you need for a life emergency quickly and privately from the comfort of your own home. With CashNetUSA, you don’t even have to drive to a skeezy part of town to get a payday loan.
I was unaware of CashNetUSA until I spent a random weekday at home recently and flipped on the tube for some quality daytime TV. That’s when I saw an ad for CashNet. This company’s campaign sounds a lot like the advertising you hear for other payday lenders: They offer short-term loans to people who need cash quickly but won’t have more money until their next payday. CashNet operates online, however, and they emphasize safety and trust as part of their sales pitch.
If you’ve read much on this site, you probably know that we’re no fans of debt — we believe that debt is a form of money slavery that can bind up your financial life for years. And payday loans are among the very worst kind of debt, intentionally trapping poor and financially ignorant people in cycles of debt that they may never be able to escape. CashNetUSA functions much like a payday lender in the virtual world. And while some state regulations prohibit CashNet from rolling over payday loans into despicable cycles of debt, all of the products that this company offers are still a giant rip-off.
The way that CashNet works varies from state to state. In some places, like my home state of Kentucky, current laws don’t allow the company to lend at all. But the company does operate in most states under various forms: Depending on the state you live in, CashNet offers short-term payday loans, lines of credit, medium-term payday loans or loan brokering services with third-party lenders. The details of how you do business with CashNet aren’t all that important, though. The main thing that you need to know is that dealing with these people is very, very expensive.
The trick with short-term lending is that the short term of the loan and the “low” fees associated with borrowing mask the true interest rate involved in these loans. When we talk about the expense of borrowing, the most common way to do it is in terms of the annual percentage rate, or APR — the interest that you pay on the loan. A mortgage loan can be as low as 3% APR right now. Many auto loans are around 5% APR, and credit card interest rates can vary anywhere between 12% and 29% APR. Because you often pay these loans off over several years, it’s natural to look at the cost in terms of the annual percentage rates. But because short-term loans are paid off in weeks or months, the idea of an annual percentage rate doesn’t come up as easily. The problem with that is that without seeing the APR, you don’t have a good point of comparison to judge these loans against others on the market. When you do see the APR on short-term loans, you’ll be astounded.
In Tennessee, for instance, CashNet will loan you $100 for a fee of “just” $15, and you have anywhere between a week and a month to pay the loan back. On the surface, that doesn’t seem like much money — the $15 fee probably isn’t going to break anybody. But remember, that’s 15% of what you borrowed, and you pay it back in less than a month. If you had a credit card with an APR of 15%, you would pay that $15 over the course of an entire year. But because you have to pay all of that money to CashNet on a much shorter term, it means that the true APR of that loan is much, much higher than 15%. We can do some math to determine what that $15 fee translates to in terms of APR (this is called “imputing” the interest rate), and the results are jaw-dropping: Using CashNet in Tennessee results in paying an imputed APR of anywhere between 176% and 684%.
Yes, you read that right. If you borrow $100 and pay it back, along with the $15 fee, a week later, you’ve just borrowed money from CashNetUSA at an interest rate of 684% APR. That number is staggeringly high. Astonishingly high. Infuriatingly high. It’s 15 times higher than most credit card rates, or the rates that local banks offer on personal loans. It’s a total rip-off.
The details of CashNetUSA transactions vary from state to state, but wherever you live, the imputed interest rates associated with borrowing from this company are absurd. In Missouri, you’ll pay up to 297% APR. Virginia’s rates on CashNet lines of credit are around 299%. In California, the lowest APR available is 207%; the highest available is 805%.
In Louisiana, borrowing from CashNet can leave you paying an APR has high as 912%. That’s abusive, exploitative and wrong in every way. But it gets even worse: CashNet customers in Idaho, Nevada, South Dakota and Rhode Island pay more than anyone in the country — up to a shocking 1140% APR. That’s mind-bendingly high.
No matter how desperate you are, there is no situation in which it makes financial sense to borrow from CashNetUSA. These guys are peddling debt at the most expensive rates imaginable, and ripping their customers off at every turn. Their 1140% APR is usury, and ought to be illegal in every state. Shame on Idaho, Nevada, South Dakota and Rhode Island for allowing this to happen. And shame on you if you play along.
Photo by Geoffrey Fairchild. Used under Creative Commons License.