According to the Consumer Financial Protection Bureau, a payday loan is a short term loan that is usually due on your next payday. Generally payday loans are for $500 or less and the cost of the loan ranges from $10 to $30 for every $100 borrowed. Typically, a two-week payday loan with $15 per every $100 fee equals an annual percentage rate (APR) of 400%. This is huge compared to the APR on a credit card that can range from 12 to 30 percent. There are laws to protect individuals. For example check out this article in the Tampa Bay Times about stronger payday loan rules to protect borrowers. Why are these rules or laws necessary? This article in the Tampa Bay Times discusses the need for more restrictions on payday loans. What do you think?
SS.8.FL.4.4 Explain that lenders charge different interest rates based on the risk of nonpayment by borrowers. Describe why the higher the risk of nonpayment, the higher the interest rate charged by financial institutions, and the lower the risk of nonpayment, the lower the interest rate charged.
SS.912.FL.4.1 Discuss ways that consumers can compare the cost of credit by using the annual percentage rate (APR), initial fees charged, and fees charged for late payment or missed payments.
Deborah Kozdras, Ph.D.