FAQ: Payday Loans

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In the United States (and I imagine that in other countries as well) there are these types of predatory loans where the person is charged through interest and charges more than 300% annualized interest. Here is some information about these loans, thanks to the California State Trade, Transportation and Housing Agency:

 

What is a payday loan or “Payday Loan”?

payday loan

Payday loans or “payday loans” are also called “cash advances” or “deferred deposits”. In a payday loan, a borrower issues a check to a lender in exchange for a short-term cash loan.

For example, a borrower writes a check for $ 300, pays a collection of $ 45 and receives $ 255 in cash. The lender does not cash the check until the next payday of the borrower’s salary, up to 31 days.

 

Costs for payday loans

Costs for payday loans

Under California law, the maximum amount a consumer can borrow on a payday loan is $ 300. The maximum fee that the lender of a payday loan can charge is 15% of the nominal value of the check (up to a maximum of $ 45). Additional restrictions apply to charges for members of the military forces and their family dependents.

The cost is equivalent to an annual percentage rate (“APR”) of 460% for a two-week loan. The actual annual percentage rate may vary, depending on the term of the loan. “APR” is the total annual interest rate a borrower pays for a loan, including all costs and charges. The annual percentage rate is used to reveal the total cost of borrowing money. For example, a loan to acquire a new car may have an APR rate of 4-7%.

 

If you get a payday loan

If you get a payday loan

Borrow only the amount you can pay in full on the next pay date. On the loan due date, some borrowers realize that they cannot pay the loan. We urge borrowers not to apply for a second loan from another payday loan lender to pay the first, as this can lead to a vicious cycle of borrowing from which it will be difficult and expensive to recover. Nor do business with any unknown payday lender through the Internet.

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