Friday, January 24, 2014

Payday Loans

A payday loan is a small, short-term unsecured loan, marketed as a quick, easy way to tide borrowers over until the next payday.

Here’s how they work: A borrower writes a personal check payable to the lender for the amount the person wants to borrow, plus the fee they must pay for borrowing. The company gives the borrower the amount of the check less the fee, and agrees to hold the check until the loan is due, usually the borrower’s next payday. Or, with the borrower’s permission, the company deposits the amount borrowed — less the fee — into the borrower’s checking account electronically. The loan amount is due to be debited the next payday. The fees on these loans can be a percentage of the face value of the check — or they can be based on increments of money borrowed: say, a fee for every $50 or $100 borrowed. The borrower is charged new fees each time the same loan is extended or “rolled over.”

The FTC, the United States Consumer Protection Agency, says that regardless of their name, these small, short-term, high-rate loans by check cashers, finance companies and others all come at a very high price. It has been found that Loan terms that require full payment in as little time as a fortnight alongwith an average annual interest of upto 400%, are responsible for driving a huge percentage of borrowers into a huge debt.


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