About Payday Loan

"Need cash till payday? Get UP TO $500 instantly!"

No doubt you have seen newspaper ads touting fast cash to tide you over until you get paid. But if you think getting a loan against your paycheck is a good idea, think again.

Loan is a business that didn't even exist 15 years ago. But today, there are more than 10 payday-loan outlets opened. For many customers, these short-term, unsecured consumer loans that are repaid on payday, serve as a successful solution to cash emergencies, and an alternative to bouncing checks or borrowing money from family or friends.

But think again, In 2002, consumers paid $4.3 billion in fees to borrow about $25 billion from payday lenders. Such lenders typically charge service fees of 15% to 30% of the principal, says a report by Consumer Federation of America (CFA), an advocacy group in Washington, D.C. The group found that these schemes prey on cash-strapped folks who get trapped in a cycle of dependency on the loans.

In a typical payday loan transaction, a borrower writes a postdated check to the lender for the amount of the loan plus a fee usually $15-$30 for each $100 borrowed. The lender agrees not to cash the check for a short period, often two weeks, or in theory, the borrower's next payday.

But,
The trouble is that some payday borrowers take out more than one loan at a time and have difficulty paying them back. Others, unable to pay a loan back on time, hand over another fee to extend it. Fees for rollovers quickly can amount to annual percentage rates in triple digits.