Check Costs

Last year when I made mock billboards for Big Print Bank, I made sure to include a reference to payday loans. Ever since my Finance 350 prof required us to calculate the APR on those suckers, I’ve been mortified by the whole industry.

Today I found an interesting tidbit [via] that underscores the whole problem (emphasis added):

The [payday] loan usually ranges from $100 to $500 and requires a fee that can be up to $25 for every $100 borrowed. Annual percentage rates on the loans can be more than 400 percent.

About 170,000 North Carolinians have tapped payday loans, according to the Center for Responsible Lending. The center said that about 99 percent of the loans go to repeat borrowers, and that the average borrower ends up paying $800 to obtain $325 because of the interest cost.
— “Final payday lenders depart N.C.

4 Responses to “Check Costs”

  1. b Says:

    Huh? Those numbers don’t make any sense. If the average person borrows $325 at a cost of $25 per $100, he would give them a check for $406.25, so isn’t that paying $406.25 to get $325?

  2. jsp Says:

    The CRL figures are here. Basically the problem seems to be that most borrowers “let it ride”, accruing fees every two weeks but never paying down the balance. This is compounded by visiting multiple shops: “Borrowers, on average, receive 8 to 13 payday loans from a single payday lender per year. And, most payday borrowers go to more than one lender, dramatically increasing their total number of payday loans per year.”

  3. b Says:

    Is that page suggesting that people will get another advance to get enough money to prevent the previous advance’s payment check from bouncing when the place cashes it?

  4. jsp Says:

    My read is that they’re saying people will pay down the fee only, so that the same check is held for another two weeks.

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