What type of marketing techniques do predatory lenders use? Hint: Choose two correct answers.

They require the borrower to have good credit

They require multiple financial documents and information to approve your loan

Which of the following statements about payday loans is TRUE?

Payday loans get borrowers into a sometimes inescapable cycle of borrowing money because of the high interest rates and fees

Payday loans usually have low interest rates

Payday loans do not have any additional fees like other types of unsecured loans

To qualify for a payday loan you must have a checking account and excellent credit score

How do the Annual Percentage Rates (APRs) on payday loans get to be so high?

The loan amounts are small, but the fees charged are relatively high and are renewed on a very short time-scale

The loans go to affluent banking customers, so they charge a lot for the exclusivity

They make most of their money through ATM withdrawal fees as well as overdraft fees on checking accounts

The amount of money people borrow using payday loans is typically quite high – $10,000 or more – so the fees are also high

Three of these statements reflect payday loans. Choose the other statement, which is aligned with a traditional bank loan instead.

Requires a credit check and suitably high credit score

Easy to obtain without a lot of paperwork

Requires payment in full in less than a month

Why are payday loans so popular?

They are accessible to people who need to borrow small amounts of money and don’t have any better options

They are a fast, easy way to save money and budget effectively

They meet the need for quick cash for very large purchases such as cars and homes

They are a terrific way to build your credit history and improve your credit score

4.7 Predatory Lending

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Mathematics

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9th - 12th Grade

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Practice Problem

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CCSS

RI.4.3, RI.5.3, RI.6.3

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THERESA DEACON

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What do you think the cartoonist is trying to convey about payday loans?

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According to Lisa Servon and Joe Coleman, what need are payday lenders filling?

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4.7 Predatory Lending

23 questions

What do you think the cartoonist is trying to convey about payday loans?

According to Lisa Servon and Joe Coleman, what need are payday lenders filling?

What is the relationship between a person’s need for payday lending and their income volatility? Why do you think this is?

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