A payday loan is always advertised as the quick and easy solution to a financial predicament. The payday lenders pose themselves as financing companies that can rescue a person from a financial crisis. The loan is short-term and the borrower is led to believe that the payday lender’s examination of his paycheck has been found to be sufficient to cover the loan. The loan application, after all, has been approved. The actual truth paints an entirely different story.

According to a research study conducted by the Center for Responsible Lending, there are three major trends that emerged about payday loans. First, the bulk of income that payday lenders obtain (about 90%) comes from the loan fees that they charge from the borrowers. The CRL observed that for an average loan of $325, the borrower ends up paying $793. How can this be possible when the advertised loan fee is only $15 to $20 for every $100 borrowed?

The typical amount loaned is not $100 but $500, which means that the loan fee is $100. Then, this loan fee is good only for two weeks because this time period is the term of the loan. After two weeks, if the borrower cannot pay the total amount ($600 for the $500 loan), the payday loan is rolled over. The loan is extended and the borrower pays only $100. In a month, the borrower had paid $200 for a $500 loan. If the loan is extended over and over again, the payday lenders earn a steady stream of $200 from each borrower and the borrower still owes them money. This implies that payday lenders are pleased to have borrowers who could not settle their debts.

The second alarming trend that the CRL research revealed is that the entire cost that American families shoulder each year to pay the loan fees of payday lenders totals to about $4.2 billion. It must be emphasized that this estimated amount covers the loans of registered payday lenders. There are other internet payday lenders that never reveal the physical location of their offices and this makes them difficult to track down. The total cost due to payday loans could be higher than the CRL’s estimated amount.

And the third disquieting trend that the CRL research found is that the states which declared payday loans illegal, are actually helping the citizens save about $1.4 billion. This is a lot of money saved from unscrupulous payday lenders but it appears small when compared to the $4.2 billion spent on payday loans. This is due to internet payday loans. The payday lenders who conduct their businesses online may have borrowers from states that banned payday loans.

Based on the actual procedures of payday lending and the excessive interests and fees out of payday loans, the payday lenders can be considered as financial predators. They do not exist to provide emergency help for people who needed money. The payday lenders exist to worsen the financial situation of these people. Similar to predatory sharks that attack when they smell blood, payday lenders go after people who are already in financial trouble.