Hello I have provided images of the project that needs to be done.

I have also provided the information that will be needed to answer part 1 questions a, b, and c.

When it comes part 2: a: is the format of the paper. Dont worry about b or c because I have that information I will put in there.

Enrique Rodriguez Nathaniel Powell Shavon Pennie FINC3321_01 PAYDAY LOAN PROJECT: THE COST OF FAST MONEY As soon as the information for the project was given to us, as a group, we took the initiative to gather the information as soon as possible. The play we went to gather our payday loan information was from Approved Money Center that is located on 700 S 14th Street, Suite B Kingsville, Texas 78363. We spoke to Courtney Candelara, Associate, who has been working there for a year. This is her first time working at this type of business. She is 24 years old and is form Annaville, Texas which is located in Corpus Christi. This was all the information we could grab at the moment because she was busy and allowed us to take a picture of the different types of loans they offered and it contained all the information we needed. The pay day loans available include: A 14 term pay day loan. This means that the loan is repayable after a period of 14 days. Upon the expiry of 14 days, the borrower is considered to have default the loan and subsequent charges come along with default. Default for less than 10 days upon the expiry of the 14 days incurs charges that amount to not less than 5% of the loan. If the default is more than 10 days, the borrower will have to pay an interest amount equivalent to $7.50. A bank the 14 day pay term period is also eligible to pay a fine of $30 for dishonoring the time frame set to settle payment of automated clearing house debit. Upon of a guaranteed loan, the collateral will be sold and the borrower will be required to cater for the repossession of the transaction. If the loan is an auto title loan, a price will be incurred for repossession of the title for the period of default. The price ranges from $28, $33, $38 depending on the location of the department of motor vehicles. The table below shows the interest, CSO fee and the annual percentage rate of the 14 payday loan for different loan amounts. Loan Lender interest rate CSO Total finance charge fee amount $300 $1.15 $ 66.00 $67.15 $500 $1.91 $110.00 $111.91 $700 $2.68 $154.00 $156.68 The interest rate applicable for a 14 payday loan term is given by the formula interest applicable amount of loan * 100% The interest rate for a $300 l0an is The interest rate for a $500 loan is = $ 67.15 300 $ 110 500 * 100%= 22.38333 *100%= 22% $ 156.68 The interest rate for a $700 loan is = 700 * 100%= 22.38285% APR 583.57% 583.53% 583.55% The interest rate charge for pay day includes the time value of money which takes a smaller percentage of approximately 0.38% as calculated below. The interest rate for a $300 l0an is $ 67. 300 * 100%= 0.383333% The interest rate for a $500 loan is = 1.91 500 *100%= 0.382% The interest rate for a $700 loan is = 2.68 700 * 100%= 0.382857142% The other percentage is meant for administrative expenses and profit for the payday approximately 22%0.38%=21.62%The APR is the rate at which the present value of the repayments (and other charges) is equivalent to the present value of the amount borrowed. For the 14 pay day loan, the APR is tabulated in the table above. It is twice the flat rate. The loan should only be taken by an investors who are able to make a profit of more than 22% of return for the amount borrowed in 14 days. The individual should also invest in a business that generates income at a very fast rate and more likely a short term loan a thing that is rare in practice. Pay day loans are more useful in terms of emergencies for example medical bills, car repair, emergency travel, in case of the demise of a member and such other cases. Another type of a pay day loan available is a three month (120 days) term loan that is payable in four months. A three term pay day loan. This means that the loan is repayable after a period of three months. Upon the expiry of 3 months, the borrower is considered to have default the loan and subsequent charges consequently follow with default. Default for less than 10 days upon the expiry of the 120 days incurs charges that amount to not less than 5% of the loan. If the default is more than 10 days, the borrower will have to pay an interest amount equivalent to $7.50. The table below shows the interest, CSO fee and the annual percentage rate of the 120 payday loan for different loan amounts. Loan amount $300 $500 $700 Lender interest $6.24 $10.38 $14.53 CSO Fee $480 $800 $1,120 Total finance charge $486.24 $810.38 $1,134.53 The interest rate applicable is given by the formula; interest applicable amount of loan * 100% Therefore for the different amounts, the interest is equal to; At the level of $ 300 the interest is At the level of $500 the interest rate is $ 486.24 $ 300 $ 810.38 $ 500 *100= 162% * 100= 162.076% APR 645.76% 645.76% 645.76% At the level of $700 the interest rate is $ 1134.53 $ 700 * 100= 162.076% The interest rate is inclusive of both the rate of interest accounting for the time value of money and the other part accounts for the administrative expenses and the profit that the company targets, the rates of interest which cater for the time value of money are given by; At the level of $300 the interest is given by At the level of $ 300 the interest is $ 6.24 $ 300 *100= 2.08% At the level of $500 the interest rate is $ 10.38 $ 500 * 100= 2.076% At the level of $700 the interest rate is $ 14.53 $ 700 * 100= 2.076% The interest rate that cover for the expenses and the profit desired by the lender take a percentage of approximately 162%- 2.08%= 159.92% The annual percentage rate is tabulated in the table above. It is the rate at which the net present value of repayments and the net present value of the loan borrowed are equivalent. Investors eligible for a 120days payday loan are those who are able to make as huge profits of at least an interest of 162% in the period of 120 days, since it is the only time that the investment can be profitable. This kind of business is rare in the real world. The other people who can take advantage of the 12 day loan are people facing emergence that must be met. Such as medical care, to meet the cost of a sudden demise, the cost of repairing a vehicle or a machine that is important for production. Other loans available are; 30 day term with charges as below Loan Lender Interest amount $300 $2.46 $500 $4.10 $700 $5.75 The rate of interest is 40.82% CSO fee $120.00 $200.00 $280.00 Total finance charge $122.46 $204.10 $285.75 APR 496.64% 496.64% 496.64% Total finance charge $606.30 $1010. 50 $1414.70 APR 716.61% 716.61% 716.61% Installment payday loan- 140 day term payable within 10 payments Loan amount $300 $500 $700 Lender Interest $6.30 $10.50 $14.70 CSO fee $600 $1000 $1400 The rate of interest 202.1% Advantages of payday loans Obtaining a payday loan is easy and fast especially in terms of emergencies. Examples of emergencies are emergency medical bills, demise or even an urgent repair. Payday loans can be obtained in some hours due to reduced processes. Credit worthiness is not a requirement and therefore those with credit worthiness issues still have a chance to get credit to fill the financial gap. Save crucial financial needs that could rather lead to higher charges for example avoiding bounced checks and credit card fees Payday loans may assist one to maintain their credit worthiness. For example taking a payday loan to clear with lending institutions Payday loans help one to be independent from family members by avoiding borrowing money from them in times of urgent needs Disadvantages of payday loans Very high rates of interest are applicable. In the above 120 days payday loan, for example the interest rates are at 162% in the three months. This interest is very high and there is barely any investment that can attain such high returns as 162%. Many invisible charges come along with the payday loans. The banks fees applicable are high and are above the interest applicable for the loan. This makes the method even more expensive in addition to the high interest rates. Strict regulations for example in the United States because of its popularity among the middle class and its exorbitant nature, laws to ban the payday loans or reduce the interest rates applicable is already being prepared in the United States The aggressiveness of lending and claiming repayments from their clients, the significant reason that has lead to strict restriction by law is the reason that the paydays abuse their right of getting their clients payback the amount by harassing them through intimidations of suing them; fast sale of collaterals and at throw away prices. It s not a financially wise decision to go for a sum of money that has very high costs in the long run, instead a loan taken should be able to earn a client higher interest than the cost of acquiring the loan (interest + bank fees) interest, this is an impossibility with the payday loans. Payday loans are only available for short periods of time Payday loans require the use of current bank accounts disregarding other means of handling money such as cash dealing Amounts lent by paydays are limited, normally $1000. Increased fraud and distrust as a result of the presence of fraudulent paydays. References Paige Skiba and Jeremy Tobacman, (2007) The Profitability of Payday Loans Michelle Hodson, 18 November 2009, How Payday Loans Work Donald P. Morgan, "Defining and Detecting Predatory Lending"