Are you paying 390% for a $400 loan? Most people would say no. But many people say yes. In the payday loan or cash advance industry, this is exactly the case. A payday advance or cash advance works like this. A borrower has a need, whether it's bills or Christmas shopping, and they need a small amount of money. Now their paycheck is just gone and their credit is far from perfect. They don't have a savings account, and because of their credit, they don't have a credit card either. So they go to 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, until the next payday. In 14 days, the borrower has several options to repay the loan. The borrower can simply do nothing and let the lender deposit the check for cash, or they can go and give the lender money for the check. There is, however, a third option. The borrower can contact the lender, immediately write another check and extend the loan. This is called “flipping.” The majority of borrowers end up returning the loan. Flipping is a major contributor to the downsides of payday loans. In fact, this allows the person to extend the loan three or four times. So, initially, the loan fee is only $60, but if a person renews the loan four more times, the fee increases to $240. Over the course of a year, a person could accumulate more than $720 in fees. That's only if they do the flip 4 times, 3 times a year. However, 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 is $400, with the $...... middle of paper ...... without the borrower ever leaving their home. This is not a good trend. As long as our society focuses on physical activities, like cash advance lenders, they play a role in it. There aren't enough books, courses, or help for people without financial literacy. We need to teach these families that saving a little goes a long way. Society must show that saving is a good thing. We have to wonder what these borrowers are teaching their children. Will future generations continue on the path we are on? We need to show them that a zero national savings rate, or a negative number, is not acceptable. We can slow the rate of growth of payday lenders through financial education. Works Cited Bloomberg Marketdata website, rates and bonds. July 25, 2007. http://www.bloomber.comWikipedia Free encyclopedia website. July 25, 2007. Payday loan. http://www.wikipedia.org