All Americans use their credit card for everyday purchases. Did you know that some short-term loans cost 20 times more interest than the average credit card? Despite this, one in ten Americans used them.

These enticing small-dollar advances or Payday Loans are available in most states. To borrow such a loan is possible for almost any American.

Here is a simple way to do this:

  1. walk into a store with a valid ID or apply online
  2. confirm your income
  3. confirm the existence of a bank account.

The balance of the loan and the "financial fee" (the service fees and interest) is usually paid in two weeks later, on your next day of payment.

Interesting fact!
CNBC1  recently conducted a survey of Americans. According to this survey, today these loans are a $9 billion business. Over the past two years, more than 11 % (approximately 3,800 Americans) of adults in the U.S. claim that they have taken out a payday loan.

Yes, payday loans provide quick cash, but the average annual interest rate across the country is almost 400 %. While the average credit card APR in July was 16.96 %. 2 

Everything happens very quickly. For example, if you want to take out a $500 payday loan with APR of 391%. After two weeks, you will need to return approximately $575. But don’t forget that the loan cycle doesn’t stop there. Many payday loan borrowers "roll over" the loan several times. Do that for three months and the amount of debt is more than $1,000.

"It is absolutely normal to get caught in a payday loan. It's the only way the business model works. A lender is not profitable until the customer has renewed or re-borrowed the loan (between four and eight times)," says Nick Burke, director of consumer finance at Pew Charitable Trusts3 , tells CNBC.

Many believe that this type of loan is a potential financial trap for borrower. In this regard, 15 states and the District of Columbia have laws that limit the APR to 36% or less, according to the Center for Responsible Lending4 . 

However, 35 other states are far more lenient. Not long ago, the Governor of Ohio signed a new law that goes into effect in October. This law should limit the state's APR for payday loans to 60%.

Ohio currently has the highest payday loan rates in the U.S. The average interest rate is 667%! The averages in Utah, Nevada, Texas, Idaho and Virginia are nearly as high.

Where payday loan rates are the highest:

STATE

INTEREST RATE

Alabama

456%

Alaska

435%

Arizona

N/A

Arkansas

N/A

California

460%

Colorado

214%

Connecticut

N/A

Delaware

521%

District of Columbia

N/A

Florida

304%

Georgia

N/A

Hawaii

460%

Idaho

652%

Illinois

404%

Indiana

382%

Iowa

337%

Kansas

391%

Kentucky

460%

Louisiana

391%

Maine

217%

Maryland

N/A

Massachusetts

N/A

Michigan

369%

Minnesota

200%

Mississippi

521%

Missouri

443%

Montana

N/A

Nebraska

460%

Nevada

652%

New Hampshire

N/A

New Jersey

N/A

New Mexico

175%

New York

N/A

North Carolina

N/A

North Dakota

487%

Ohio

677%

Oklahoma

395%

Oregon

154%

Pennsylvania

N/A

Rhode Island

261%

South Carolina

391%

South Dakota

N/A

Texas

662%

Utah

658%

Vermont

N/A

Virginia

601%

Washington

391%

West Virginia

N/A

Wisconsin

574%

Wyoming

261%

For those who have overdue payday loan costs can be substantial and long-term. Some payday lenders try to get their money back in very aggressive ways. For example, to take money directly from current accounts of borrowers. This option is possible because borrowers provide access to their accounts as a condition of the loan. These unexpected withdrawals by lenders can seriously damage the credit scores of borrowers.

In addition, it can be difficult for borrowers to save while paying off such high-cost loans.

"Payday loans are dangerous and unaffordable for everyone! However, borrowers who are just starting out or who are struggling financially are the most vulnerable," Lisa Stifler, the deputy director of state policy for the Center for Responsible Lending, tells CNBC Make It.

Not to get into trouble borrowing a Payday Loan use reliable comparing services and choose the most verified lenders with the lowest interest rates and fees.

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