Payday Loans Explained — consumerfinance.gov


Just like a taxi is meant to take you on a
short trip, payday loans are meant to be short-term debts. These are small dollar loans that are usually
due in full on your next payday, and carry an average annual percentage rate of over
300 percent. Most consumers can’t afford to pay back
all of the money they owe by their next paycheck. Within a month, almost 70 percent of borrowers
take out a second payday loan. One in five borrowers ends up taking out at
least ten or more loans, one after the other. With each new loan, the consumer pays more
fees and interest on the same debt. What was supposed to be a short-term loan
becomes a long-term debt trap. That’s like getting into a taxi for a ride
across town, but paying for a cross-country road trip. The Consumer Financial Protection Bureau is
working to end the payday debt trap. Our rules require lenders to determine whether
borrowers can afford to pay back their loans. Borrowers can avoid the debt trap when they
repay, not repeat, their loans. To learn more about our work to end payday
debt traps, visit consumerfinance.gov

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