WASHINGTON — About half of all payday loans are made to people who extend the loans so many times they end up paying more in fees than the original amount they borrowed, a report by a federal watchdog has found.
The report released Tuesday by the Consumer Financial Protection Bureau also shows that four of five payday loans are extended, or “rolled over,” within 14 days. Additional fees are charged when loans are rolled over.
Payday loans, also known as cash advances or check loans, are short-term loans at high interest rates, usually for $500 or less. They often are made to borrowers with weak credit or low incomes, and storefront businesses often are located near military bases. The equivalent annual interest rates run to three digits.
The loans work this way: You need money today, but payday is a week or two away. You write a check dated for your payday and give it to the lender. You get your money, minus the interest fee. In two weeks, the lender cashes your check or charges you more interest to extend, or “roll over,” the loan for another two weeks.
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