Payday loans are short-term, high interest loans based on an individual's income. The principal portion of the short-term loan is typically based upon the lender’s recapture of a portion of the borrower’s upcoming paycheck. Payday loans typically range in amount from $300 to $900. Payday lenders take advantage of the borrower’s immediate need for cash by charging higher-than-normal interest rates.
Payday loans function as unsecured credit as they do not require any collateral. They are often considered a form of predatory lending due to the hidden fees, extremely high interest rates, and the lenders’ lack of concern regarding the consumer’s ability to repay the loan. Often, payday loans create a web of debt for which the consumer is unable to escape or repay. Prior to utilizing payday loans, consider alternative emergency loans or other personal loan financing alternatives that are safer and less predatory.
Over the years, laws have been put in place to regulate the high fees and interest rates of payday loans. Currently, 16 states outlaw payday loans of any kind —Arizona, Arkansas, Colorado, Connecticut, Georgia, Maryland, Massachusetts, Montana, New Hampshire, New Jersey, New York, North Carolina, Pennsylvania, South Dakota, Vermont, and West Virginia—and the District of Columbia.
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Nicole Michelle
Finance and Money Wiz
September 22, 2021
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