If someone mentioned that they would lend you $500 today in the event you repaid them with $5000 a year from today, would you take it? What if the repayment amount were only $2500? Would that strike you as a good deal? This may sound like a crazy amount to repay on a little loan, but that, in effect, is what thousands of consumers do every day when they take out a payday loan.

Payday loans, also identified as cash advance or 30 day payday loans, are short term loans that usually last about two weeks. In exchange for borrowing relatively small sums ranging from $100-500, the borrower pays a fee that can vary from $10-40 per $100 borrowed for the two-week loan. The consumer writes a postdated check for the borrowed sum plus the fee, which the lender may cash two weeks later.

These fees may appear relatively little, but when viewed as an annual percentage rate, they actually range to anywhere between 250-1000% per year. That's an astronomical amount of interest in a world where a credit card loan at 25% is considered to be high. And however, the payday loan business is thriving and you will find now some 23,000 stores in America that offer some form of these 30 day payday loans.

Why do people take out such loans? The primary reasons are comfort and a lack of much better alternatives. These stores are now so common that there are often several of them on a single block. They don't do credit checks and they'll lend money to fairly much anyone with a steady job. And the borrowers tend to be people who do not have access to other borrowing options, like credit cards, friends with cash or a local credit union that offers short 30 day payday loans.

Defenders of these financial products say that they are merely offering a product that the public desires. That may very well be true, as these businesses are doing very nicely. What remains to be answered is whether the public truly wants to borrow money at 500% per year. In all likelihood, they are doing so only because they cannot find a much less expensive choice. Anyone who needs a short term loan is more than welcome to go to a payday loan store to get one. But any potential borrowers should understand that they making use of one of the world's most costly forms of lending.

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