In Louisiana, it's more convenient to get a payday loan than a Big Mac. That's because there are four times as many payday loan outlets as McDonald's restaurants. While a steady diet of Big Macs will pile the pounds on, a steady diet of payday loans can put you in bankruptcy.
Payday lenders -- so called because they loan you money against your next paycheck -- provide loans of $50 to $350 to financially stressed people who sometimes can't afford their rent, groceries or utilities until their next payday arrives. Borrowers write a check for the amount of the loan, plus interest and fees, and are able to walk away with cash in hand.
But there's a catch -- and it's a big one. The interest rates on payday loans are sky-high, approaching an annual percentage rate -- or APR -- of 800. At one lender, for example, the total payment for borrowing $50 for two weeks is $65, an APR of 782. A $300 loan costs $350, an APR of 434. Not surprisingly, once on this high-priced debt treadmill, borrowers find it hard to get off. The average payday borrower in the United States takes out nine loans per year.