Payday Loan

AAA

DEFINITION of 'Payday Loan'

A type of short-term borrowing where an individual borrows a small amount at a very high rate of interest. The borrower typically writes a post-dated personal check in the amount they wish to borrow plus a fee in exchange for cash. The lender holds onto the check and cashes it on the agreed upon date, usually the borrower's next payday. These loans are also called cash advance loans or check advance loans.

INVESTOPEDIA EXPLAINS 'Payday Loan'

Although the federal Truth in Lending Act requires payday lenders to disclose their finance charges, these establishments have gotten a bad reputation for their predatory lending practices. Most borrowers using payday loans have bad credit and low incomes. They may not have access to credit cards and are forced to use the service of a payday loan company. Even if the borrower feels the fee may be fair ($17.50 per $100 for seven days), that translates into a rate of more than 900% on an annualized basis. Most loans are for 30 days or less and can be rolled over for additional finance charges. Loan amounts are usually from $100 to $1,500.

RELATED TERMS
  1. Advance Funding

    This refers to any advance made on a future commitment or payment. ...
  2. Subprime Loan

    A type of loan that is offered at a rate above prime to individuals ...
  3. Subprime Lender

    A type of lender that specializes in lending to borrowers with ...
  4. Interest

    1. The charge for the privilege of borrowing money, typically ...
  5. Loan Shark

    A person or entity that charges borrowers interest above an established ...
  6. Per Transaction Fees

    An expense a business must pay each time it processes a customer’s ...
RELATED FAQS
  1. What is the difference between an in-store and an online payday loan?

    There are several differences between in-store and online payday loans. They include: Interaction between borrower and lender. When ... Read Full Answer >>
  2. What price-to-book ratio is considered average in the chemicals sector?

    You can use Microsoft Excel to calculate the loan-to-value ratio if you have the mortgage amount and appraised value of a ... Read Full Answer >>
  3. Why is it beneficial to innovate financial models and techniques used in quantitative ...

    The majority of consumers use credit cards at some point during their lifetimes to finance major purchases, earn rewards ... Read Full Answer >>
  4. How can I use quantitative analysis to evaluate investment decisions if I don't have ...

    While there are a few legitimate companies advertising that they can consolidate credit card debt, most are illegitimate ... Read Full Answer >>
  5. What are some common models that practitioners use in quantitative analysis of equity ...

    Credit cards can be a helpful component in reaching a financial goal or financing some of life's bigger expenses. Carrying ... Read Full Answer >>
  6. Why do long-term care insurers require the loss of two Activities of Daily Living ...

    A merchant would use a banker's acceptance for several reasons, particularly when engaged in international trade. One of ... Read Full Answer >>
Related Articles
  1. Retirement

    How To Invest When You're Deep In Debt

    Debt is one of the biggest obstacles that prevents people from investing - but it shouldn't be.
  2. Credit & Loans

    The Importance Of Your Credit Rating

    A great starting point for learning what a credit score is, how it is calculated and why it is so important.
  3. Credit & Loans

    Digging Out Of Personal Debt

    Find out why good intentions can put consumers in an even bigger hole than before.
  4. Personal Finance

    5 Times Cash Rewards Credit Cards Come In Handy

    Using a credit card with cash rewards during emergencies can help you get through tough times, buy you time to pay off costs and even reap a cash reward.
  5. Credit & Loans

    American Express's Main Competition

    American Express competes with Visa, MasterCard, and Discover Financial Services in the credit card space. It also competes with banks to draw consumers.
  6. Credit & Loans

    Credit Cards That Will Get You First Class Flights

    It's getting harder and harder to be upgraded to first or business class on airlines. Here are some credit cards that may help you get those premium seats.
  7. Credit & Loans

    How To Increase Your Appeal To Prospective Lenders

    Making a business eligible for loans/credit cards at the best possible rates requires crafting an excellent credit profile through the smart use of credit.
  8. Forex Fundamentals

    Bitcoin Transactions Vs. Credit Card Transactions

    We provide an overview of the differences between bitcoin and credit card transactions, and the advantages of using one over the other.
  9. Credit & Loans

    Top Credit Cards For The Ultra Rich

    Only a few people qualify for these elite cards. The question is, are the lush perks big bucks can buy you worth the cost?
  10. Credit & Loans

    The Pros & Cons Of Personal Loans vs. Credit Cards

    One is not like the other. We help you decide where to borrow money from.

You May Also Like

Hot Definitions
  1. Moving Average - MA

    A widely used indicator in technical analysis that helps smooth out price action by filtering out the “noise” from random ...
  2. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  3. Productivity

    An economic measure of output per unit of input. Inputs include labor and capital, while output is typically measured in ...
  4. Variance

    The spread between numbers in a data set, measuring Variance is calculated by taking the differences between each number ...
  5. Terminal Value - TV

    The value of a bond at maturity, or of an asset at a specified, future valuation date, taking into account factors such as ...
  6. Rule Of 70

    A way to estimate the number of years it takes for a certain variable to double. The rule of 70 states that in order to estimate ...
Trading Center