A previous exploration of payday loans discussed the sky-high interest rates being assessed by these "reputable" loan vendors lurking on street corners. It actually is worse than stated.
A brochure from my local bank discusses The Truth About Payday Loans and provides this example:
And all of this assumes that the loan is repaid at the end of one month. Oh well, no worry, as our government will bail everyone out!
- Face value of check: $200
- 15% fee: $30
- Amount paid to customer: $170
- Lender pockets $30, or an APR of 458% if the loan is repaid within two weeks
- If one extends this loan for two more weeks, another $30 is charged, the loan is now $230, and the APR leaps to 917%
- In short, it costs $60 to borrow $170 for one month
Source: WECUnews, February 2008