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13 October, 13:53

Ava obtains a short-term loan from a payday loan lender. When the loan is due, Ava does not have enough money to pay the loan. She uses her credit card to pay it off rather than extend the payday loan. Will Ava's actions increase the total cost of the loan more than just extending the loan? Why or why not?

No, because she will not have to pay any interest on her credit card.

No, because the interest charged by her credit card will be less than the interest charged by the payday lender.

Yes, because payday loans do not charge extra fees or interest to extend a loan.

Yes, because the interest charged by the payday lender is less than the interest rate of her credit card.

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  1. 13 October, 14:38
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    No, because the interest charged by her credit card will be less than the interest charged by the payday lender.

    Usually, the amount given to you by the payday lender is already net of interest. So, if you applied for a loan of $100, you will be given an amount less than $100 but you still have to pay for $100. The interest of the loan have already been taken by the payday lender.

    Because of the short span of time the payday lender has, it charges a higher interest than that of a credit card. You only pay interest on your credit card when you have an outstanding balance at the end of the monthly cut-off. If you pay off the total outstanding amount within the cut-off, no interest will be charged.
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