“Pay day” loans gouge the desperate

A pay day loan is typically for a few hundred dollars, with a term of two weeks, and an interest rate as high as 800 percent. The average borrower ends up paying back $793 for a $325 loan, according to the Center.

A quick Google of “payday loans online” showed several sites charging 900% APR for a $100 7 day loan.

Why is this legal?


  1. ??? That’s certainly something different than what we have in Illinois where you can only be charged a maximum of $15 for every $100(or 15%).

  2. In the UK, as else where I imagine, legal and illegal loans have always lived side by side. The poor and the desperate usuall only have access to the illegal and the rates charged are at the whim of the lender. Well that’s capitalism, isn’t it?

  3. Is this any worse than the major banks making a significant part of their profits on all sorts of fees that most affect the poor? Such as $39.00 dollar charge for being 10 cents over your limit.
    I used to think that payday loans were bad, but according to a ‘Reason’ magazine article, it’s much cheaper to get a payday loan for a few days then a NSF fee when you buy more groceries than you should have.

  4. Ben,

    one problem is that while IL might say only 15% interest, this does not apply to loans done via websites.

  5. Steve,

    Yeah, it’s getting harder to differentiate between credit card company and pay day loan gouging.

    Makes you almost wish for the days of Mafia loan sharks who probably would have been embarrassed to charge 900% interest a year (but then their collection techniques were a bit more efficient…)

  6. Ben: Is that $15 cap per $100 loaned for a full year? Because if it’s for a week, the APR is not 15%, it’s 780%.

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