WASHINGTON — About half of payday loans are made to people who extend the loans so many times they end up paying more in fees than the original amount borrowed, the Consumer Financial Protection Bureau says.
Its report shows that four of five payday loans are extended within 14 days, incurring additional fees.
Payday loans, also known as cash advances and check loans, are short-term loans at high interest rates, usually for $500 or less.
They often are made to borrowers with weak credit or low incomes.
The equivalent annual interest rates run to three digits.
The loans work this way: You need money today, but payday is a week or two away. You write a check dated for your payday and give it to the lender. You get money, minus the interest fee. In two weeks, the lender cashes your check or charges you more interest to extend, or ‘‘roll over,’’ the loan for another two weeks.
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The CFPB also found that four of five payday borrowers default on or extend a payday loan over the course of a year. Only 15 percent repay all their payday debts on time without borrowing again within 14 days.