What Every Borrower Should Know

Don't take out an urgent cash loan before you get the facts. Here are the things every borrower should know about the payday loan industry.

Quick Cash, for a Price

Urgent cash loans are very convenient and extremely quick, without question. However, one thing borrowers need to understand is that they pay quite a heavy price for this convenience. The interest rates on payday loans in most cases are staggering. For example, you might authorize your payday lender to withdraw $300 from your account on your payday in return for the direct deposit of $255 into your account now. The lender takes the difference as an interest fee. If you repay the loan on its original due date, the APR for this loan would be about 450%. If you extend or roll the loan over, your APR could skyrocket to 600%-700%.

Growing Demand

The exorbitant interest rates on urgent cash loans apparently aren't enough to thwart their growing popularity. Here are a few facts about the industry:

• In the early nineties, there were around 300 payday loan outlets in the U.S. Currently, there are more than 22,000, according to the Community Financial Services Association of America.
• To give you some perspective, there are 7,300 Burger Kings and 13,700 McDonald's in the U.S., which means there are more payday lenders in the U.S. than all Burger King and McDonald's restaurants put together.
• 90% of payday lenders' revenue comes from customers who roll their urgent cash loan over at least once. The average payday borrower repays $793 for an initial loan of $325, according to the Center for Responsible Lending.

What to Watch For

If you're going to take out an urgent cash loan, what you have to avoid is rolling the loan over. This is where payday lenders make all of their money, and where most borrowers get into serious trouble. The majority of payday loan customers roll their loans over at least once, and a substantial number roll their loans over multiple times. Some borrowers end up also using multiple lenders, borrowing from one payday lender to repay another. The message of this all is that payday loans can quickly snowball into out-of-control debt, so you must be sure that you can repay the loan on its original due date to avoid excessive fees.