The announcements are on the radio, television, Internet and also in the mail. They refer to payday loans – which are granted at a very high price.
Companies that change checks, finance companies and others give loans for small, short-term and high-interest amounts that have a variety of names: payday loans, cash advance loans, postdated check loans or loans on Deposit of deferred checks.
Generally, the consumer makes a personal check in the name of the lender for the amount they wish to borrow plus a charge. The company gives the borrower the amount of the check and discounts the charge. Charges for payday loans are usually a percentage of the nominal value of the check or a charge charged for a borrowed amount – for example, for every $ 50 or $ 100 borrowed. And, if you extend or terminate the loan – let’s say for another two weeks – you will pay the corresponding charges for each extension made.
Under the federal law called the Truth in Lending Act, which deals with the transparency of loans, the cost of payday loans – as with other types of credit – must be disclosed. Among the information you should receive, in writing, the finance charge (an amount in dollars) and the annual effective rate (APR for its acronym in English) that is the cost of credit on an annual basis.