Page 2 - How PayDay Loan company collect money from their customer?

Hello,
geesh.. 300% interest rate? Why use that if it only sinks you in deeper. paydayloans.. meh

A) The ramifications are rarely explained.
B) It fixes an immediate need.

Why do some people live in "rent by the week" motels at $200 a week when an apartment is $400? Simple, to get the apartment costs 2 months rent ($800). To get the motel room is 1/4 the upfront cost.

Let me clear up some confusion here. The "300%" is APR. Since the loan term is 15 days (most people are paid on the 15th and 31st), that is less than one year. As you shorten the loan period the APR goes up geometrically, so it is a trick of math. This is why the Federal Government, requires in Regulation Z (Truth in Lending Act) that the APR AND the FINANCE CHARGE are equally prominent on the FTLDS (Federal Truth in Lending Disclosure Statement a.k.a, the loan contract). The finance charge shows the loan fee in dollar terms.

Lets expand on your example: 15 day loan, $500 Amount Financed. APR is 300%. So, the %fee charged works out to 12.5% of the amount borrowed, or $62.50 This is the fee a borrower pays for a loan.


Typically, $500 is very large, and not so common. Average is $300. In your example, the loan fee is $37.50.


Now check this out. If we use the SAME loan fee of 12.5%, but we SHORTEN the loan period to 7.5 days, we get an APR of 600%. But if we shorten it furthur to 2 days, we get an APR of 2250%. So, the number of days of the payday loan has been shortened to .13333 its former value, and we would expect the APR would be larger by 7.5 times (the inverse of .13333), and it is. BUT THE FINANCE CHARGE IS STILL THE SAME AT $62.50 FOR THE $500 LOAN.

This is why RegZ and the FTLDS list BOTH APR and Finance CHarge (in $$).

The last time I applied for a second mortgage on my house, they charged me $1500, most of which went to the loan broker. All he did was find a lender for me. Now that's what I call a rip-off.

So, its a good idea to learn how to calculate compound interest rates, APR's, etc. Any decent finance course will teach this.

As for payday loans, remember that they are wholly consumer driven. In other words, a buncha guys did NOT get together and say "lets start a legalized loan sharking business, so that we can force consumers to borrow money at high interest rates." Instead, what happend was banks said "we cannot afford to make loans less than $1000 to high risk consumers, and only charge 20% APR, so we will simply not offer loans to these consumers, and we will simply not offer loans less than $2000 lines of credit". Consumers said, "I NEED money for just two weeks, because I get paid then, and my kid needs medication, or my car needs to be fixed so I can get to work." Some business men said "these high risk consumers need this, and we have to charge enought to pay our employees, pay rent on the store, electricity, etc. etc, AND cover bad debts" Hence, payday lending was born.

Xixiang
(a payday lender)

So you signed up to justify taking advantage of the poor?

Try looking at existing payday loan company's.

Man, that's horrible.

People who are already in financial trouble, getting screwed over by companies like this to put them in the hole even more.

I guess business isn't the place morals & ethics.

yes yes, its USURY

and it once was illegal.

need to start immediately

The banker is a fellow who lends you his umbrella when the sun is shining, but he wants it back the minute it begins to rain.

A payday loan or cash advance is an excellent way to get immediate funds directly deposited into your bank account. With no credit check required, simply fill out our application online and your loan can be approved .

There are business in Oz that charge over 1200% on small loans, but you only pay that if you haven't paid the loan off within 2 weeks of getting one.

Thanks for your reply it is helful .

Someone already is going this.

Are you sure its 300%?

If I borrow $500, I owe $1500?? I dont think so..

For these scams, yes. It's more like 11-12% for two weeks. You borrow $500, you pay back $558 two weeks later. Theoretically, except you don't, you just pay the $58 and over the course of the year you end up paying $1,500 in interest and you still owe $500.

It's legalized fraud.