The multi-billion dollar payday loan industry is one of America’s most prevalent. So what exactly is a payday loan? The definition of a payday loan is: “A relatively small amount of money lent at a high rate of interest on the agreement that it will be repaid when the borrower receives their next pay-check”- essentially, legal loan sharking. What makes this industry so successful – and unethical – is that their business model is dependent on the majority of its’ customers not being able to pay back their loan.
The image above describes a step-by-step process involving a customer receiving a loan and not being able to pay it back, forcing them to take out another loan, increasing annual interest rates. This is the result for a staggering 74% of customers at Payday loan stores world-wide, which explains why the average annual percentage rate on payday loans in the U.S. Ranges from 196% to 574% depending on the state. Ultimately, the payday loan industry is a great contributor to economic disparity and essentially does much more harm than good.
References:
http://www.businessinsider.com/outrageous-facts-about-payday-loans-2013-10