small loans, big debt the cost of pay day lending illinois people’s action
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SMALL LOANS, BIG DEBTSMALL LOANS, BIG DEBTThe Cost of Pay Day LendingThe Cost of Pay Day Lending
Illinois People’s Actionwww.illinoispeoplesaction.org
Comparing Quick Cash OptionsWhat does $500 cost after 2 months?
Type Loan Interest
Rate
Interest after 2
months
Payment due after 2
mo.
Credit Union or Bank Loan 18% $11 $511
Credit Card Advance 28% $18 $518
Pay Day Loan 390% $300 $800
How a $350 payday loan affects a household budget
$35,000 Salary
2 week income $1,346
Minus taxes $105
After tax income $1,241
Payday loan plus “fees”
$403 ($350 loan + $53 fee)
Money left over $838
2 weeks household expenses
$895
Deficit $(57)
2010 Payday reform billSigned June 21, 2010; goes into effect April 2011
Caps interest rates at 400% for payday loans ($15.50 per $100)
Requires determination of customer’s ability to repay
Limits customers to 4 loans/year Can’t penalize customers for paying off loans
early. Can’t require large lump-sum “balloon”
payment at the end of the payment cycle.