Consumer Law

Payday loans prove irresistable, even to those who know better

By Sam Glover

Payday loans are small, short-term, high-interest loans. Most are less than $400, with a term of two weeks or less. In exchange, the consumer generally pays $15 for every $100 borrowed, or a 360% APR. (Even high-interest credit cards generally charge less than 30% APR.)

Most consumers roll over the loan several times, incurring an additional fee each time. For example, a $300 payday loan rolled over for three months will cost an additional $270 in interest payments.

So why do people use payday loans?

Possibly because there are few alternative for payday loan customers, if any. This is true, although some credit unions have found ways to lend to the same clientele at more reasonable rates. Still, as long as payday loans remain legal and the market fails to provide a widely-available, viable alternative, it looks like consumers will continue to use them.

400 Percent APR?Is That Good? | Slate (via Neatorama & Consumerist)

(photo: slideshow bob)

Full post as published by Caveat Emptor on July 28, 2009 (boomark / email).