# Payday Loans what you should know about them

Payday loans are arguably the worst kind of loan you can obtain. In fact, may experts believe that some of these organizations are involved in predatory lending. Predatory lending is defined as, “any of a number of fraudulent, deceptive, discriminatory, or unfavorable lending practices. Many of these practices are illegal, while others are legal but not in the best interest of the borrowers.” The predatory lending that some payday loan businesses are accused of being involved in are the types of loans that are “legal but not in the best interest of the borrowers.”

These businesses take advantage of a person’s desperation and ignorance regarding lending practices. Payday loan centers basically require you to write them a post dated check that will be deposited on the date indicated. The amount payable on the check is greater than the amount of money that the person borrowed. This is how these businesses make money. What, you may be asking, is wrong with that?

The problem is, if you break down the difference between the amount loaned and the amount paid by the borrower, the result is the equivalent to an astronomical interest rate charged by the lending center. For example, let us say that you want to borrow \$500 from one of these payday advance loan centers. In exchange for you borrowing \$500, the payday advance loan center tells you that you have to give them \$550 from your next paycheck. Most people get paid every two weeks. Therefore, the payday advance loan center is effectively making \$50 worth of interest on \$500 in only two weeks or fourteen days. Using the standard interest formula of principal multiplied by the interest rate multiplied by the time equals the interest obtained (P x R x T = I), we can calculate the interest rate charged by these businesses. If you fill in all the numbers you know (the principal (P), the time (T), and the interest (I) are known) you can solve the formula for the interest rate. In order to save you some time, I will tell you the answer. If the payday advance loan center made \$50 on a \$500 loan in only two weeks, that is the equivalent of charging the borrower about 261% interest. That is not a typo. The interest rate is two hundred and sixty-one percent!

I have a problem paying more than ten percent interest annually on credit cards. However, these payday advance loan centers are charging over twenty times that in a period of only two weeks! Talk about predatory lending! This arrangement is about as far away from the “best interest of the borrower” as it gets.

Now that you know this information, please carefully analyze your financial situation before using one of these services. In my opinion, absent the brink of starvation, you should not use these services.