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Payday loan
From Citizendium, the Citizens' Compendium
A payday loan or paycheck advance is a small, short-term loan that is intended to cover a borrower's urgent expenses until their next payday. Typical loans are between $100 and $1500, are usually on a 2 week term, and usually have interest rates in the range of 390 percent to 900 percent (annualized). They are also sometimes referred to as cash advances, though that term can also refer to cash provided against a prearranged line of credit such as a credit card.
Regulation on these short-term loans rest in the hands of state legislatures. Critics to the payday loan industry argue that the lenders trap consumers in a cycle of debt. Lenders point out that these loans are often the only option available to consumers with bad credit who have urgent expenses and can't get a bank loan, credit card, or other lower-interest alternative.
The industry's fast paced growth indicates a highly profitable business model. Statistics show that the majority of the industry's profit comes from repeat borrowers, who are unable to pay them off on the due date and instead repeatedly renew their loans, paying fees each time.
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