This is an important news you should know and understand when you are planning to take a payday loan.

Defenders of the higher interest rates say processing costs for payday loans do not differ much from other loans, including home mortgages. They argue that conventional interest rates for lower dollar amounts and shorter terms would not be profitable.

For example, a $100 one-week loan, at a 20% APR (compounded weekly) would generate only 38 cents of interest, which would fail to match loan processing costs.

Critics say payday lenders’ processing costs are significantly lower than costs for mortgages and other traditional loans.

Payday lenders usually look at recent pay-stubs, whereas larger-loan lenders do full credit checks and make a determination about the borrower’s ability to pay back the loan.