HOW EXPENSIVE ARE PAYDAY LOANS?

TERMINOLOGY FINANCE CHARGE: The dollar amount paid to borrow money. INTEREST: The cost of borrowing money expressed as a percentage of the loan amount. FEES: The additional costs beyond the interest associated with borrowing money. ROLLOVER: Paying a fee to delay paying back the loan UNDERBANKED: Consumers have either a checking or savings account, but also rely on alternative financial services.

TERMINOLOGY Alternative Financial Services (AFS) include:  Check-cashing outlets  Money Transmitters  Car-title Lenders  Payday Loan Stores  Pawn Shops  Rent-to-Own Stores Source: FDIC

TERMINOLOGY ANNUAL PERCENTAGE RATE (APR): The yearly rate that is charged for borrowing expressed as a single percentage number. This represents the actual yearly cost of funds over the term of a loan including any fees or additional costs associated with the transaction.

WHAT IS A PAYDAY LOAN? A payday loan – which might also be called a “cash advance” or “check loan” – is a short-term loan, generally for $500 or less, that is typically due on your next payday.

WHO USES PAYDAY LOANS?

THE UNDERBANKED AND AFS  81 percent use non-bank money orders  30 percent use non-bank check cashing services  16 percent use payday lending  16 percent use pawn shops  13 percent use rent-to- own services  13 percent have used refund anticipation loans during the past 5 years Source: FDIC

PAYDAY AMERICA Twelve million American adults use payday loans annually On average, a borrower takes out eight loans of $375 each per year and spends $520 on interest. Three-quarters of borrowers use storefront lenders and almost one-quarter borrow online. Most payday loan borrowers are white, female, and are 25 to 44 years old. 69 percent used it to cover a recurring expense, such as utilities, credit card bills, rent or mortgage payments, or food.

PAY DAY LOANS GENERALLY HAVE THREE FEATURES: The loans are for small amounts. The loans typically come due your next payday. You must give lenders access to your checking account or write a check for the full balance in advance that the lender has an option of depositing when the loan comes due.

HOW DO YOU CALCULATE APR? The loans on the left are for 14 days. Divide the fee by 14 to get the daily fee. Multiply that amount by 365 to get the annual fee. Divide that by the loan amount and multiply by 100 to convert it to a percentage.

The True Cost of a Payday Loan

TOTAL COST WITH ROLLOVERS WEEKSTOTAL PAID 0$575 2$650 4$725 6$800 8$875 10$950 12$1025 APR = %

TWO STOREFRONT PAYDAY LENDERS FOR EVERY ONE STARBUCKS Cracking Down on Payday Lenders

ALTERNATIVES TO PAYDAY LOANS Negotiate a payment plan with the creditor Charge the amount to your credit card Receive an advance from your employer Use your bank’s overdraft protections Obtain a line of credit from an FDIC approved lender Borrow money from your savings account Ask a relative to lend you the money Apply for a traditional small loan Ask your creditor for more time to pay a bill Use a cash advance on your credit card

TOTAL COST FORMULA T= Total Cost F= Finance Charge L= Loan Amount R= Number of Rollovers T= L+F(1+R) 76% of Americans Living Paycheck to Paycheck