In the United States, the lending industry is a thriving business because Americans enjoy a nationwide financially secure system. There is stock lending, mortgage lending, and business lending. There is a strong inclination to borrow because lending provides the resources that Americans need to invest, to expand their businesses and to obtain greater financial security. Lending is a reliable and effective financial tool.

However, this once trusted method of expanding financial security is threatened by the increase of subprime lending. In subprime lending, the loaned amounts are too huge for the borrowers to settle within a reasonable time or the borrowers are not checked to determine if they have the capacity to pay the loaned amount. Most subprime lending entails high interests that push a borrower into greater debt.

The whole set up of payday loans is a type of subprime lending. The loan applicants are allowed to borrow amounts of money that may be too large to pay off. For example, a loan applicant who makes about $4,000 a month is allowed to borrow as much as $2,500. Obviously, with all other household expenses, this loaned amount could not be settled within two weeks. The payday loan contract seems to deliberately keep the unsuspecting borrower in debt.

The bad news is that payday loans are too easy to obtain. The online forms of payday lenders are easy to fill out. Replies from the payday lenders are given within 24 hours, and the whole loan agreement is carried out in less than two days. The convenience that payday loans offer has attracted too many Americans.

The total amount of loans obtained from payday lenders has risen dramatically throughout the years. The Center for Responsible Lending (CRL) reports that in the last few years, the loaned amounts from payday loans reach about 4 billion dollars every year.

This huge debt is not just the actual loaned amount. It also includes the loan fees or the interest. Payday lenders demand interests that could be as high as 800% annually. Unfortunately, this high APR or annual percentage rate is not obvious because payday lenders advertise the interest rate in terms of actual amounts, such as: “an interest of $20 for every $100 borrowed.” This $20 interest is not for one month or for one year. It is for two weeks. Therefore, in one month, the interest is $40. And in 3 months, the interest becomes higher than the loaned amount.

Some people may believe that paying $20 for interest is not a big thing. The reality is that the typical borrower does not obtain a $100 loan. The minimum amount loaned is usually $200 and it can be as high as $2,500. According to the research of Center for Responsible Lending (CRL), the typical loan is $500. This means that in two weeks, a borrower must pay an interest of $100 for a $500 loan. This is the reason why through payday loans, many American families are acquiring debts with unreasonably high interests. And this is why payday loans are dragging many Americans into billions worth of debt.