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Payday Loans

In: Business and Management

Submitted By joesantini92
Words 3266
Pages 14
Payday Loans: Helpful or Hurtful
Joseph Santini
Monmouth University

I. Introduction
There is a new trend in lower income communities in the United States called payday loans. The popularity of getting payday loans to help to pay off utilities and short term debts. These loans have become controversial and brought on speculation of the ethics of the loans and their practices. There has been legislation brought through state senates on this issue but with heavy lobbying have not be able to see the light of day. The tactics of these lobbyists have also come into question. The overall question to be answered is if payday loans are good for this country. II. What are Payday Loans?
Payday loans are defined on Investopedia as a short-term loan with a small borrowing amount and a high rate of interest. The way it works is the borrower writes a post-dated check for the borrowing amount plus a fee for immediate cash. The lender keeps the check until the agreed date which is normally the borrower’s next payday. These loans are also commonly called cash advance loans or check advance loans. (Investopedia)
These are attractive to lower income community because the loans offer them money right away before they earn it. The feeling of having physical cash in their hands makes them confident in themselves. This system is great if you can pay the debt off quickly but if you take just a small amount of time to pay the loan the debt can pile up. This is because these loans have a fee applied which pushes the total higher than the payday check combined with a very high rate of interest.
The fee is typically $17.50 per $100 for seven days but this then can becomes 900% on an annualized basis. The problem with this is that the fee adds onto the original principle which is based on the borrower’s payday check. This is a problem because the loan is made to be paid in…...

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