Payday Loan

What is a 'Payday Loan'

A payday loan is 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.

BREAKING DOWN '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.

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RELATED FAQS
  1. What are the basic requirements to qualify for a payday loan?

    Find out the basic requirements to apply and qualify for a payday loan and understand the factors that determine when and ... Read Answer >>
  2. Is my credit score usually checked before receiving a payday loan?

    Learn more about how payday lenders operate and whether or not they check your credit score during your loan application ... Read Answer >>
  3. What are the differences between payday loans and cash advances?

    Learn how to differentiate between payday loans and cash advances, identify what risks are associated with each, and find ... Read Answer >>
  4. Do payday loans hurt my ability to get a mortgage?

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  5. What are some examples of a good time to take out a payday loan?

    Find out if it is ever a good time to take out a payday loan, and learn what you need to consider when looking at payday ... Read Answer >>
  6. 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 ... Read Answer >>
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