Payday loan, also call cash advance. It is a short term loan that doesn’t require credit check, generally for $500 or less and typically due on the next payday.
Payday loan or cash advance generally have three features
1. It is a short term loan with small amount, normally less than $500
2. No credit check is required
3. The borrower needs to grant the lenders access to their checking account or cutting a check for the full balance in advance that the lenders can make the deposit when the loan comes due.
It is no surprise that the interest rate for this type of short term loan is over 1000%. Typically the cost of the loan or finance charge range from $15 to $45 for every $100 borrowed. Imagine a person who borrows $300 from the lender needs to repay $390 in a two-weeks period assuming the finance fee is $30 per $100 borrowed. That is really a lot of fees. Payday loan companies are mostly focused on low income customers with either bad credit or no credit. Most of them don’t have the financial ability to pay back the full amount on the due date so the next option for them is to only pay the interest and roll-over the principle and this is how the payday loan company keep making money from them.
State laws and other factors that limited how much you can borrow and the fee you are charged. US government not really recognize the payday loan business. There are 12 states in the country where payday loan business are completely banned. Those cities are:
- Arkansas
- Arizona
- Connecticut
- Georgia
- Maryland
- Massachusetts
- New Jersey
- New York
- Pennsylvania
- North Carolina
- Vermont
- West Virginia
On the other hand, there are few states that don’t limit the finance charge or interest at all. Those states are:
- Delaware
- Idaho
- Nevada
- South Dakota
- Utah
- Wisconsin
What I have seen
I have been working as a senior web developer with a payday loan company for more than 5 years. Generally most of the payday loan company are mainly focus their business online. They hire people and sit in the big lot call center, calling customers and verify all the information with the bank whole day long. The payday loan company that I worked for has more than 250 customer service representatives (CSRs), each day they will call minimum 300 to 400 customers in a 10-hours working schedule. It’s a really tight and stressful job that I’ve seen some of them left the job for a cashier in some fast food chain.
Filing lawsuit, closing bank account to avoid further taking money out from the customer’s account is not uncommon in this industry and payday loan companies experienced enough for that. In sum, I don’t really think payday loan is a solution for people who needs financial assistance. In fact, it is actually making people to go even deeper in debt.
