Pay Day loans.
To do or not to do? As the interest on payday loans is murder. But I guess if you need a loan and get get it anywhere else, then you must do what you must.
Take look at the rates Country by Country:
Canada has a cap of 23% of the principle, a cap of 30% on a defaulted loan, and a borrowing limit of 50% of the net amount of the individual's next pay.
23% that is just outrageous. But wait it gets better just keep reading.
Our English brothers really get the shaft.
UK has a charge 25% for an advance repayable by end of the month, which makes the rate higher, a few even charge 30%, which is equal to an APR of over 2,000%. That's just bloody unreal!
For the US it's even worse. You can be charged up to 36% for a loan. But some companies will not charge any interest if you pay it back by the next day.
Here is the current list of states that have made Pay Day loans illegal are as follows:
Arizona
Arkansas
Connecticut
Georgia
Maine
Maryland
Massachusetts
New Hampshire
New Jersey
New York
North Carolina
Ohio
Pennsylvania
Vermont
West Virginia
Why so much interest on a payday loan?
Well, for example, a $100 one-week loan, at a 20% APR (weekly) from a bank would generate only 38 cents of interest, which would fail to match loan processing costs. Not enough for them to make money on is it?
Now let's let's look at how payday loans structure their interest.
"Due to the extremely short-term nature of payday loans, the difference between APR and effective annual rate (EAR) can be substantial, because EAR takes compounding into account. For a $15 charge
on a $100 2-week payday loan, the APR is 26 × 15% = 390% but the EAR is (1.1526 - 1) × 100% = 3,685%. Careful reporting of whether EAR or APR is quoted is necessary to make meaningful comparisons."
So lets be careful out there and try to make sure you're getting the best deal when you use a payday loan service.
Or one might be wearing a new pair of Italian air-boulders and swimming with the fishes.
CrBob
San Jose Costa Rica.
09/06/2010