Poverty attracts loan sharks like blood attracts actual sharks. Poverty lowers resistance to promises of instant money despite exorbitant interest rate one may be charged. It works like this:
Joe, who works for the national lending chain, is set up inside the convenience store eager to bail you out of whatever financial crisis you might possess. You require $100 today so Joe tells you to write him the check for $125, postdated by two weeks. You get $100 today and in 2 weeks, when you will hopefully have some money, Joe cashes your $125 check.
a.) Find annual interest rate you paid for $100 2-week ‘loan'?
b.) In two weeks, you do not have funds to cover $125 check so it bounces. "No problem," says Joe, "life is tough. I will gladly roll loan over for another $30. Write the new check, postdated for two weeks, for $155 and we will be square." Find new interest rate for this $100 4-week loan?