Payday
Advance - Payday Loan
A
payday loan or paycheck advance is a small, short-term loan that
is intended to cover a borrower's urgent expenses until their
next payday. Typical loans are between $100 and $1500, are usually
on a 2 week term, and usually have interest rates in the range
of 390 percent to 780 percent (annualized). They are also sometimes
referred to as cash advances, though that term can also refer
to cash provided against a prearranged line of credit such as
a credit card.
Though payday
lending is primarily regulated at the state level, the United
States Congress passed a law in October 2006 that
will cap lending to military personnel at 36% APR. The Defense
Department called the lending "predatory", and military
officers cited concerns that payday lending exacerbated soldier's
financial challenges, jeopardized security clearances, and even
interfered with deployment schedules to Iraq. [1]
Some federal banking regulators and legislators seek to restrict
or prohibit the loans not-just for military personnel, but for
all borrowers, because the high costs are viewed as an unnecessary
financial drain on the lower and lower-middle class populations
who are the primary borrowers.
Lenders point out that these loans are often the only option
available to consumers with bad credit who have urgent expenses
and can't get a bank loan, credit card, or other lower-interest
alternative. Critics counter that most borrowers find themselves
in a worse position when the loan is due than they were when
they took the loan, with many getting trapped in a cycle of debt.
The industry's fast paced growth indicates a highly profitable
business model. Statistics show that the majority of the industry's
profit comes from repeat borrowers, who are unable to pay them
off on the due date and instead repeatedly renew their loans,
paying fees each time.
from
Wikipedia |
