Share this Mister Wong Digg Del.icio.us Slashdot Furl Yahoo Technorati Newsvine Googlize this Blinklist Facebook Wikio Print E-mail Tags payday loans loan companies short-term loans interest payday loan

Payday loans are quick and easy to obtain but they are short-term loans that are payable on the borrower's next payday. The borrower can obtain the loan in just one day and there are only a few requirements so that even those with bad credit may be able to qualify for them. However, the interest rates that payday loan companies charge have been one of the criticisms against such loans.

Possibility that payday loan companies may charge usurious rates

Because of the very short duration of the loan, which is usually from 10 to 14 days, there have been reports that the effective annual interest rate is on the average 400 percent and could get as high as 650 percent. The problem with this is that the large effective annual interest rate is not immediately obvious because of the tendency to consider the apparent interest rate or just the nominal annual rate. Most borrowers will not consider the cumulative effect of interest.

Canadian laws on usurious interest rates

Fortunately, the federal and provincial governments had started to establish regulations and the Criminal Code makes it illegal to charge interest rates that are greater than 60 percent annually. Nevertheless, studies have shown that borrowers have accepted usurious rates for payday loans even if the law prohibits them. Some claim that payday loan companies would not be able to operate profitably if they do not charge those kinds of rates. And with so many payday loan companies charging usurious rates, it is argued that applying the law will apparently shut down almost the entire industry. With the presence of consumers with little or no access to traditional loan sources, this is likely to cause a series of complaints.

Add comment

Name (required)

E-mail (required)

Notify me of follow-up comments

Refresh

Send

Cancel