What is Payday Loan?
A small, short-term, high interest rate loan. (Also known as cash advance loan, check advance loan, post-dated check loan, or deferred deposit check loan.) Usually, a borrower writes a personal check payable to the lender for the amount he or she wishes to borrow plus a fee. The company gives the borrower the amount of the check minus the fee. Fees charged are usually a percentage of the face value of the check or a fee charged per amount borrowed. If the loan is extended or "rolled-over," the borrower will pay the fees for each extension.
Under the Truth in Lending Act, the cost of a payday loan, like other types of credit, must be disclosed. Among other information, the borrower must receive, in writing, the finance charge (a dollar amount) and the annual percentage rate, or APR.
With a typical payday loan, you might write a personal check for $110 to borrow $100 for two weeks - until payday. The annual percentage rate (APR) in this example is 390 percent! Payday loans are illegal in some states.
Payday loans are not intended to meet long-term or recurring financial needs. It is recommended that you use a payday loan only to meet occasional or unusual short-term cash needs.
