HOW EXPENSIVE ARE PAYDAY LOANS?

TERMINOLOGYFINANCE CHARGE: The dollar amount paid to borrow money.INTEREST: The cost of borrowing money expressed as a percentage of the loan amount.FEES: The additional costs beyond the interest associated with borrowing money.ROLLOVER: Paying a fee to delay paying back the loanUNDERBANKED: Consumers have either a checking or savings account, but also rely on alternative financial services.

TERMINOLOGYAlternative Financial Services (AFS) include: Check-cashing outlets Money Transmitters Car-title Lenders Payday Loan Stores Pawn Shops Rent-to-Own Stores

Source: FDIC

TERMINOLOGYANNUAL PERCENTAGE RATE (APR): The yearly rate that is charged for borrowing expressed as a single percentage number. This represents the actual yearly cost of funds over the term of a loan including any fees or additional costs associated with the transaction.

WHAT IS A PAYDAY LOAN?

A payday loan – which might also be

called a “cash advance” or “check loan” – is a short-

term loan, generally for $500 or less, that

is typically due on your next payday.

WHO USES PAYDAY LOANS?

THE UNDERBANKED AND AFS 81 percent use non-bank

money orders 30 percent use non-bank

check cashing services 16 percent use payday

lending 16 percent use pawn

shops 13 percent use rent-to-

own services 13 percent have used

refund anticipation loans during the past 5 years

Source: FDIC

PAYDAY AMERICA• Twelve million American adults use payday loans

annually• On average, a borrower takes out eight loans of

$375 each per year and spends $520 on interest. • Three-quarters of borrowers use storefront

lenders and almost one-quarter borrow online. • Most payday loan borrowers are white, female,

and are 25 to 44 years old.• 69 percent used it to cover a recurring expense,

such as utilities, credit card bills, rent or mortgage payments, or food.

PAY DAY LOANS GENERALLY

HAVE THREE FEATURES:• The loans are for small

amounts.• The loans typically

come due your next payday.

• You must give lenders access to your checking account or write a check for the full balance in advance that the lender has an option of depositing when the loan comes due.

HOW DO YOU CALCULATE APR?

• The loans on the left are for 14 days. Divide the fee by 14 to get the daily fee.

• Multiply that amount by 365 to get the annual fee.

• Divide that by the loan amount and multiply by 100 to convert it to a percentage.

The True Cost of a Payday Loan

TOTAL COST WITH ROLLOVERS

WEEKS TOTAL PAID

0 $575

2 $650

4 $725

6 $800

8 $875

10 $950

12 $1025

APR = 456.25%

TWO STOREFRONT PAYDAY LENDERS FOR EVERY ONE

STARBUCKSCracking Down on Payday Lenders

ALTERNATIVES TO PAYDAY LOANS

• Negotiate a payment plan with the creditor

• Charge the amount to your credit card

• Receive an advance from your employer

• Use your bank’s overdraft protections• Obtain a line of credit from an FDIC

approved lender• Borrow money from your savings

account• Ask a relative to lend you the money• Apply for a traditional small loan• Ask your creditor for more time to

pay a bill• Use a cash advance on your credit

card

TOTAL COST FORMULA

• T= Total Cost• F= Finance Charge• L= Loan Amount• R= Number of

Rollovers

T= L+F(1+R)

76% of Americans Living Paycheck to Paycheck