What Is A Payday Loan?

Monday, 16 February, 2009

An explanation

How it works

A borrower gets a payday loan by writing a post-dated check, including finance charges, to a loan company for a smaller sum of cash immediately. For example, a borrower seeking a $300 loan writes a check to a loan company for $345.

The terms

Two weeks later, the borrower either pays the loan company $345 or the company deposits the $345 check or electronically debits $345 from the borrower’s checking account.

The fees

Payday lenders typically charge $15 for every $100 borrowed. Annualized, that’s an interest rate of 390 percent.
Why the fuss?

Critics of the industry say many people who take payday loans get trapped in a cycle of debt. After paying off a loan, some borrowers immediately assume another loan. This practice is called flipping, and is legal in South Carolina. Borrowers who flip loans pay hundreds of dollars in fees.

What’s next?

The House bill passed last week will now go to the S.C. Senate. If it passes the Senate, then it will go to Gov. Mark Sanford for his signature. The governor has not decided whether he will sign the existing bill.

Source: thestate.com