Christmas Loans

The Holiday Borrowing Risk List

Ch. 3.4. Short-Term Payday Loans

According to the Consumer Financial Protection Bureau, there is no one set definition of a payday loan. Typically, a payday loan is a short-term, high-cost loan that is due on the borrower’s next payday. State laws set limits on the amount of fees that can be tacked on to payday loans, and some states don’t allow lenders to provide them at all.  Although there have been many attempts in recent years to protect consumers from these risky loans, people still often get caught in a vicious cycle of borrowing, never quite able to fully pay the loans back.17

What is predatory lending?

Predatory lending is when a lender knowingly deceives or coerces a borrower into a loan that has terms they will be unable to meet, and usually try to take advantage of someone’s lack of knowledge about interest rates, fees and other hidden costs associated with the loan. Predatory loans take many forms, including payday loans, tax refund anticipation loans and even mortgages.18

Lenders that advertise Christmas or holiday loan promotions are glorified payday lenders. Payday loans are very risky, often coming with triple-digit interest rates that can have long-term negative effects on credit.19

Example: If you borrow $500 at 300% APR, and it takes 6 months for you to pay it back, you’ll end up paying $1016.46 in total, which means you’re paying more in interest ($516.46) than you initially took out.

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