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Originally Posted by speeder
I'm guessing that usory laws do not apply to these somehow(?) What collateral do they take from the borrower?
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It depends on the state. Not all states allow payday loans.
There is no collateral, these are very short term unsecured loans. The loan period is usually until the borrower's next paycheck is received, so usually less than 2 weeks. Although there is no collateral, you do usually have to prove you have a job (usually by showing your prior paychecks) to convince them you have a paycheck coming. And, the borrower usually has to write out and give a post-dated check that the lender can cash after the date on the check.
Because the term is so short, and the loan amount so small, the % rate can be extremely high, but not painful. For ex., if you borrow $200, and pay back $220, the loan only cost you a few packs of smokes, but the Annual Percentage Rate is huge. (I'm not good at math, but that would be an APR of what, 200%+?).
If you go into one of these shops, they will usually have signs disclosing the APR (signs required by many states). The APRs are in the hundreds.
Because these are small unsecured loans, the default rate is very high.