Would you pay 390% for a $400 loan? Most people would say no. Many, however, say yes. In the payday loan or cash advance industry this is indeed the case. A payday advance or cash advance works this way. A borrower has a need, whether it's bills or holiday shopping, and needs a small amount of money. Now, their payday has just passed and their credit is far from perfect. They don't have a savings account and, because of their bad credit, they don't even have a credit card. So they stop by a payday lender. The borrower writes a check for $460 and receives $400 in cash. The $60 is the loan fee. The lender grants the loan for 14 days, i.e. until the next payday. In 14 days the borrower has a couple of options to pay the loan. The borrower can simply do nothing and let the lender deposit the check in cash, or he can go and give the lender cash for the check. However, there is a third option. The borrower can approach the lender, immediately write him another check and extend the loan. This is called “flipping”. There are most of the borrowers who end up reversing the loan. Tipping is one of the major factors contributing to the downside of payday loans. This is because this allows the person to extend the loan three or four more times. So, initially the loan fee is only $60, but if a person renews the loan four more times the fees rise to $240. Over the course of a year a person could accrue more than $720 in fees. This is only if they do it 4 times 3 times a year. Now this does not include the interest rate. Interest rates for small loans can range from 390 to 900 percent, according to Wikipedia. The interest rate for the 14 day loan of $400, with $...... half of the card... will be done without the borrower ever leaving their home. This is not a good trend. As long as our society focuses on tangible assets, like cash advance lenders, they have a role in it. There aren't enough books, courses or help for those without a financial education. We need to teach these families that saving a little means a lot. Society needs to demonstrate that saving money is a good thing. We must ask ourselves what these borrowers are teaching their children. Will future generations continue the path we have taken? We need to show them that a national savings rate of zero, or a negative number, is not acceptable. We can slow the pace of growth of payday lenders through financial education. Bloomberg Marketdata website, rates and bonds. July 25, 2007. http://www.bloomber.com Wikipedia free encyclopedia site. July 25, 2007. Payday Loan. http://www.wikipedia.org