There are some payday lenders who offer loans at extremely high interest rates for short periods of time but they should not be confused with loan sharks.
Because the rates provided by payday lenders can be completely legal. Because the maximum interest rates are dictated by standard usury laws in each state, which could range up to 45%.
Because payday lenders are often granted exceptions, to the special provisions by state governments they may sometimes charge annual interest rates of up to 400%. However, the rates charged by loan sharks are higher than the rates charged by payday lenders.
Payday lenders are a legal form of high-interest lending. They are registered entities that follow standard credit application procedures, like requesting personal information for a credit check.
The borrower also needs to provide proof of employment and income to payday lenders. These lenders usually base the principal on the borrower’s income and credit profile.
The main difference is payday lenders do not use violent tactics for debt collection, even if they offer short-term rates with very high interest costs. making it complicated for a borrower to repay.
If delinquencies occur then the payday lenders will follow standard collection procedures, reporting to the credit bureaus on missed payments and defaults.