Learn : how payday loans work ?

The Payday Loan Industry

Recent years have seen substantial growth in “alternative financial services” and other forms of sub-prime lending. These services include pawnshops and title lending, sub-prime mortgage lending, check-cashing businesses, rent-to-own stores, and payday lenders. Sub-prime mortgage loans accounted for 8 percent of all mortgage originations in 2003 and grew to be 28 percent of all mortgage originations in 2006.

One of the most thriving sectors of the sub-prime market, payday lending, has become a booming business across the United States. The research group Stephens Inc. estimated that in 2005 the entire payday lending industry was worth $40 billion, and the industry has only grown since then.

The financial burden of payday loans has become prevalent for borrowers all over the country. In a recent report from the Center for Responsible Lending, researchers found that Americans spend $4.2 billion in excessive finance fees per year. It was also found that over 9 out of 10 payday loans go to borrowers who make five or more transactions a year.

"In 2007, the U.S. Department of Defense determined that payday loans were a harmful product and mandated a 36 percent rate cap on payday loans for military personnel and their dependents."

The Payday Loan Introduction

Payday loans, also called deferred-deposit loans, are cash advances on a borrower’s upcoming paycheck. They are intended to provide short-term credit to assist borrowers with immediate, one-time needs. But the evidence shows that, in Colorado and throughout the country, the structure of these loans makes it particularly difficult for borrowers to pay them off. As a result, low-income workers across the
nation have found themselves dependent on a product that leads to long-term debt that is difficult to escape.

Payday lending is just one part of a larger problem of abusive lending practices in the United States. This report focuses solely on payday lending because changes in state policy can curb its harmful effects. In recent years, several states have successfully regulated payday lending, and Colorado needs to follow suit.

This report analyzes payday lending in Colorado by using data collected by the Attorney General’s staff. These data clearly show that payday loans are a financially destructive product for consumers. In addition, the report examines the industry’s business model and the legal framework in which it operates.

Payday lenders in Colorado are exempted from the state’s usury laws. This legal privilege allows them to charge triple-digit interest rates, as measured on an annual basis and facilitates the industry’s rapid growth. Other states have addressed this problem by enacting legislation to tighten the regulation of payday loans, effectively putting money back into the hands of working families.

Federal policy, experiences in other states and data collected in Colorado all show that the most useful way to help Coloradans stay out of payday lending debt is to enforce a low-interest rate cap as measured by the Annual Percentage Rate, or APR. This would bring payday lenders more in line with the conditions imposed on other lenders. In 2005, Colorado residents paid an estimated $84 million in total fees for payday loans. If state policymakers rein in the payday lending industry, they could save working Coloradans up to $76 million by eliminating unnecessary interest and fees.

PayDay Loan Requirement.

• You must have a steady source of income to ensure you will be able to return your payday loan.
• You must reside in the state you choose for your loan application.
• You must be completed at least 18 years.
• You must not be a regular or reserve member of the Army, Navy, Marine Corps, Air Force, or Coast Guard.
• You must have a valid Social Security Number or Individual Taxpayer Identification Number.