When you need money urgently, comparison shop for loans by looking at both total dollar costs and the Annual Percentage Rate (APR). Payday lenders, for example, typically charge about $15 for every $100 borrowed. So, on a $500 loan for two weeks, you'd pay $75 in interest. That might not sound like a lot of money to pay for a small loan, but it translates to a whopping 391 percent Annual Percentage Rate! (The APR is the effective annual interest rate on a loan after taking into account one-time fees and interest.)
And if you renew or "roll over" the $500 loan for another two weeks, you'd pay an additional $75 in fees. At that rate, in just 14 weeks, you will owe more in fees ($525) than the original loan! "Consumers often roll over the same payday loan several times because they cannot pay the full amount on the due date," said Rae-Ann Miller, special advisor on consumer issues in the FDIC's research division. "These consumers can end up paying significant sums to borrow what started out as a small amount of money."
And if you renew or "roll over" the $500 loan for another two weeks, you'd pay an additional $75 in fees. At that rate, in just 14 weeks, you will owe more in fees ($525) than the original loan! "Consumers often roll over the same payday loan several times because they cannot pay the full amount on the due date," said Rae-Ann Miller, special advisor on consumer issues in the FDIC's research division. "These consumers can end up paying significant sums to borrow what started out as a small amount of money."
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