United Ijaw States

In a traditional payday loan, a customer writes a personal check made out to the lender, which the lender agrees to hold for about two weeks before depositing. In exchange, the payday lender advances to the customer a cash payment that is somewhat less than the amount of the check. The difference, which is the "finance charge." combined with the maturity of the loan determines the annualized interest rate. In the states where payday lending thrives, lenders typically charge $15 to $25 for each $100 they advance. That is, in a typical transaction, a borrower might write a check for $235 that the lender agrees to hold for two weeks and the lender then provides the borrower with a $200 cash advance on that check. In most cases, the loan process is very quick. A first-time borrower who arrives with the necessary information (a check, recent pay stub, copies of recent bank statements, identification, and a series of utility bills or other evidence of a stable place of residence) can walk out with his cash in less than thirty minutes.

Before the loan matures, the borrower can pay the lender the face value of the check in cash, extinguishing the debt, and concluding the transaction. If the borrower does not repay the loan by its maturity, the lender may deposit the check. Assuming that the check clears, the loan is fully repaid and the transaction complete. If a borrower does not want to or cannot repay a loan at maturity, a lender will frequently allow hint or her to renew the loan by "rolling it over." In a rollover, the borrower pays the lender the finance charge due at maturity and the lender agrees to hold the check for another specified period.

Another way to extend the maturity of a loan is a "same-day" advance. That is. the borrower re-pays an existing loan with its finance charge and, on the same day, takes out a new cash advance equivalent to the previous one. Under either method, the interest on the loan is paid with each renewal. There is no compounding of interest. This makes the calculation of the annual percentage rate quite simple. For example, the annual percentage interest rate on a two-week $200 loan for which the lender charges $30 is 390 percent (15 percent for 2 weeks multiplied by 26). Given the short maturity of the loans and the size of the finance charge relative to the size of the loan, the annual percentage rate on payday loans commonly falls between 350 and 1,000 percent.

Researchers have conducted several surveys of the characteristics of payday loan customers and their findings are broadly consistent.’ All payday loan customers have bank accounts, for this is what makes them eligible for the service. The vast majority is employed and has a household income between $15,000 and $60,000. The customers tend to be young adults: most are under forty years old. Most have children in the household.