Payday loans are short term loans made by companies like Money Mart and The Cash Store at very high interest rates. A borrower writes a personal cheque for the loan amount, plus a fee, payable to the lender. The lender holds the cheque until the borrower’s next payday and then deposits it if the borrower hasn’t paid by cash before that date. If there are insufficient funds in the borrower’s account, they will owe a return fee to the payday lender and an NSF fee to their bank. The borrower might then take out another payday loan to pay off the original loan.
The fees for payday loans are as much as $17.50 for every $100 borrowed. This works out to an APR (annual percentage rate) of 913% for a one week loan or 456% for a two week loan.
What makes me most concerned about these companies is that as the recession continues and banks restrict their lending, the payday loan companies I mentioned above both had double digit revenue increases this past quarter over the previous year. These revenues are made from the increasing number of people that believe they have no other options for paying their bills and rent.
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