Western Sky Commercial
Posted on February 9, 2013 · Posted in General

A payday loan is the worst possible financial decision that you can make. Just how bad? Let’s take a look at the following financial table for Western Sky Financial. This South Dakota based company located in the boundaries of the Cheyenne River Sioux Reservation often advertises on Cable TV and this is all of the fine print that you can’t actually read during their slick advertisements.

The most striking thing when I put this together was the APR for the smaller loan products. Their entry level loan features a 342.86% APR but it’s only 12 payments which makes it a bargain compared to their other offerings. Their $10,000 loan is a seven, yes seven year, commitment and over the life of the loan, you end up paying $52,000 more than what you actually borrowed.

If this hasn’t convinced you that Western Sky Financial doesn’t have a soul, look at the loan fees for their smallest fixed rate product. The loan fee constitutes 41% of the total amount but if it makes you feel better, the loan fee for their seven-year $62,000 commitment is a mere $75.

Loan Borrower Amount Loan Fee APR # of Payments Payment Amount Total Paid
$10,000 $9,925 $75 89.68% 84 $743.49 $62453.16
$5,075 $5,000 $75 116.73% 84 $486.58 $40872.72
$2,600 $2,525 $75 139.22% 47 $294.46 $13839.62
$1,500 $1,000 $500 234.25% 24 $198.19 $4756.56
$850 $500 $350 342.86% 12 $150.72 $1808.64

You might wonder how they can charge such a high APR and the answer is that they are located on a tribal reservation (though the company is operated by a tribe member and not the tribe itself). The legal boundaries between tribal, state and federal law are not very well understood in many respects which is why the company has been banned in multiple states from issuing loans based on existing state law but not any federal laws.

The saddest thing about payday loans is that it’s a form of modern day financial slavery. Someone borrows $500 to pay their bills then borrows more to pay the payments on their previous loan (this rollover process is often slathered in additional administrative fees to increase the yield of the loan) and eventually the amounts spiral out of control. It’s the equivalent of opening credit card accounts and moving balances but at a hyper-accelerated rate.

The best financial advice I can give is never take a payday loan but if you find yourself in a desperate situation, call your parents because pride isn’t worth putting yourself into financial slavery.