We are in a time where finance companies, check cashers and other
businesses are making high-rate, short term loans. Commonly, a borrower
will write a payable check to a lender for the amount she or he
wishes to borrow in addition to the fee. The borrower then receives
the mount of the check minus the fee. Usually the borrower will
pay the fee for the amount borrowed or a percentage of the face
value of the loan. If one decides to extend or “roll-over”
the loan, say for an additional two weeks, the fee will be charged
for each extension. The Truth in Lending Act states, like other
types of credit, the cost of the loan must be disclosed. You must
receive in writing, the finance charge in a dollar amount and the
annual percentage rate, or Apr. A payday loan is expensive credit.
Say you get a payday loan secured by a personal check. You write
a check for two hundred and thirty dollars to borrow two hundred
dollars for up to fourteen days. The lender will then deposit your
check. You have the option to redeem your check by paying two hundred
and thirty dollars, or roll-over the check by paying a fee for extending
the loan for an additional two weeks. Clearly, the interest on this
loan will climb high with a fifteen dollar finance charge, a three
hundred and ninety one percent Apr. If one were to roll-over the
loan three times, the finance charge would climb to one hundred
and twenty dollars for borrowing two hundred dollars.
© 2006 Payday Loan Information.