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. Interest

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

    A person or entity that charges borrowers interest above an established ...
  4. Subprime Loan

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

    A type of lender that specializes in lending to borrowers with ...
  6. Consumer Credit File

    A collection of data about an individual’s borrowing and repayment ...
Related Articles
  1. Savings

    What is the difference between an in-store and an online payday loan?

    Learn important differences between online and in-store payday loan companies. Explore different charges made by companies and assess their value.
  2. 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.
  3. 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.
  4. Credit & Loans

    Digging Out Of Personal Debt

    Find out why good intentions can put consumers in an even bigger hole than before.
  5. It can be great to live in the moment, but the actions and decisions you make now can greatly impact your sense of financial security down the road.
    Personal Finance

    How Do Americans Keep Minimizing Their Net Worth?

    It can be great to live in the moment, but the actions and decisions you make now can greatly impact your sense of financial security down the road.
  6. Active Trading Fundamentals

    What does the gearing ratio say about risk?

    Find out why lenders and investors pay close attention to a firm's gearing ratios, and why both too much and too little borrowing can be risky.
  7. The trick isn’t to buy the stock of the San Francisco-based LendingClub — it’s to become an investor in the loans the company wants to make.
    Stock Analysis

    Investing In (And With) Lending Club

    The trick isn’t to buy the stock of the San Francisco-based LendingClub — it’s to become an investor in the loans the company wants to make.
  8. Investing Basics

    What is the difference between the gearing ratio and the debt-to-equity ratio?

    Dive deeper into gearing ratios: what are they, how are they used and why the debt to equity ratio is one of the most popular analytical gearing tools.
  9. It's tough to get a credit card when you move to the U.S. with no Social Security number and no American credit history. Here's how to get started.
    Credit & Loans

    Top Credit Card Options For International Students

    It's tough to get a credit card when you move to the U.S. with no Social Security number and no American credit history. Here's how to get started.
  10. Personal Finance

    What Canadian credit cards offer the best travel rewards?

    Discover Canada's best credit cards for travel rewards and the benefits that they offer. Learn how these cards can help you travel safely and happily..

You May Also Like

Hot Definitions
  1. Santa Claus Rally

    A surge in the price of stocks that often occurs in the week between Christmas and New Year's Day. There are numerous explanations ...
  2. Commodity

    1. A basic good used in commerce that is interchangeable with other commodities of the same type. Commodities are most often ...
  3. Deferred Revenue

    Advance payments or unearned revenue, recorded on the recipient's balance sheet as a liability, until the services have been ...
  4. Multinational Corporation - MNC

    A corporation that has its facilities and other assets in at least one country other than its home country. Such companies ...
  5. SWOT Analysis

    A tool that identifies the strengths, weaknesses, opportunities and threats of an organization. Specifically, SWOT is a basic, ...
  6. Simple Interest

    A quick method of calculating the interest charge on a loan. Simple interest is determined by multiplying the interest rate ...
Trading Center