Thursday, July 9, 2009
A majority of borrowers who take out payday loans have to seek a new loan shortly after paying back the original debt because repayment left them with inadequate funds for other needs, a new study by the Center for Responsible Lending has found.
Payday loans require borrowers to sign over their next paycheck in exchange for a cash advance of a few hundred dollars with an interest rate as high as 400 percent.
The report, released today, examined the loan activity of the more than 80 percent of borrowers who take out more than one payday loan a year. The borrowers generally opened new loans soon after repaying the old one, with 87 percent of all new loans occurring during the next pay period.
Nearly 59 million loans totaling more than $20 billion fit this pattern, accounting for three-quarters of all payday loan volume, the study found. The loans resulted in $3.5 billion worth of fees each year.
-- Nancy Trejos