For example, a borrower wants to get a payday loan. The borrower will write a post-dated personal check for $500 to borrow $570 for up to two weeks. The payday lender agrees to hold the check until the borrower’s next paycheck date.
At that time, the borrower has the option to redeem the check by paying $570 in cash or renew his loan by paying off the $570 and then immediately applying for an additional loan of $500, as result prolonging the loan for another 14 days. However, in many states extending payday loans is not allowed by state law. In states where there is an extended payment plan, the borrower could choose to opt into a payment plan.
The Consumer Federation of America has surveyed one hundred internet payday loan websites recently. The results showed that these lenders offer loans from $100 to $1,500, with $500 the most frequently offered. Finance fees ranged from $10 per $100 up to $30 per $100 borrowed. The most frequent rate was $25 per $100, or 650% annual interest rate (APR) if the payday loan is repaid within 14 days.
Exploiting financial emergencies for profit.
Critics say that payday lenders are exploiting consumer’s temporary financial difficulties to make high profit. Often payday lenders are targeting their services to young or poor people with low-income. Borrowers simply may not understand that the high APR can trap them into a debt-cycle, where they will have to repeatedly extend the loan and pay growing extra fees every 14 days until they can save enough money to pay off the loan amount and get out of this dangerous cycle. There is an opinion that payday lenders disadvantage the poor people, compared to the middle class who pay moderate interest on their credit cards.
Meanwhile, supporters say that many people that apply for payday loans have already ruined any other available alternatives. They are not able to get a bank loan or a credit card because of serious problems with credit history.
We can get emergency fund with payday loan. We can be benefited in our bad time by payday loan. But Payday loan can be debt trap for some one. If you have caught by payday loan debt you can seek help for your payday loan debt relief from the online financial company.