Payday loans are short-term, small-dollar, unsecured loans that



borrowers give their word to repay out of their next paycheck or

regular income payment. Payday loans are usually charged at a

fixed-dollar fee, which is like the finance charge to the borrower.

Because these loans have such short terms to maturity, the cost of

borrowing, expressed as an annual percentage rate, can range from

three hundred percent to one thousand percent, or more. In return for

the small loan which is usually less than five hundred dollars the

borrower provides the lender with a check or debit authorization for

the amount of the loan plus the finance charge. The lender agrees to

defer presentment of the check until the customer's next payday. At

the next payday, the customer may redeem the check by paying the loan

amount plus the finance charge, or the lender may cash the check. In

some cases, the borrower may extend the loan by paying only the

finance charge and writing a new check. Typically, payday loan

borrowers have cash flow problems and few, if any, lower cost

borrowing alternatives. Payday customers tend to be frequent users of

payday advances, often choosing either to "roll over" their credits

or to obtain additional subsequent extensions of credit. Many payday

customers often experience cash flow difficulties even after

borrowing the payday loan, which in the long run makes no difference

if they borrowed the cash or not.

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