Unless you're sure that you will have more money next payday to repay the debt, you end up struggling to pay it, or refinancing it within another loan and getting into a horrible downward spiral of debt.
There's been reluctance to set an interest rate cap, in part because it might create a target for lenders to aim at.
But a review by the Commerce Commission recently found a lender charging 800 per cent.
That means someone who borrowed $100 would pay $8000 a year for it.
This cannot be part of a well-functioning financial system. If people are getting into such trouble that they need these loans, we need to find ways to help boost financial literacy.
People need to know that when they take a loan they must find out the total amount they'll pay and the interest rate — not just the repayments that the lender tells them.
This is a sector that needs more attention. Interest rates so high are simply setting people up to fail when at their most vulnerable.
Jeremy Tauri is an associate at Plus Chartered Accountants.