Pay Day Loans
Free Pay Day Loan Information
Get a payday loan analysis before going out and taking out a loan.
Use this free guide to payday loans to fully understand the way payday loans work. Read all the fine print and understand all the payment terms.
A payday loan (also called a paycheck advance or payday advance) is a small, short-term loan that is intended to cover a borrower's
expenses until his or her next payday. The loans are also sometimes referred to as cash advances, though that term can also refer to
cash provided against a prearranged line of credit such as a credit card (see cash advance). Legislation regarding payday loans varies widely
between different countries and, within the USA, between different states.
Some jurisdictions impose strict usury limits, limiting the nominal
annual percentage rate (APR) that any lender, including payday
lenders, can charge; some outlaw payday lending entirely; and some
have very few restrictions on payday lenders. Due to the extremely
short-term nature of payday loans, the difference between APR and
effective annual rate (EAR) can be substantial, because EAR takes
compounding into account. For a $15 charge on a $100 2-week payday
loan, the APR is 26 x 15% = 390% but the EAR is (1.1526 − 1) x 100%
= 3,685%. Careful reporting of whether EAR or APR is quoted is
necessary to make meaningful comparisons.
Borrowers visit a payday lending store and secure a small cash loan, with payment due in full at the borrower's next paycheck (usually a two week term). In the United States, finance charges on payday loans are typically in the range of 15 to 30 percent of the amount for the two-week period, which translates to rates ranging from 390 percent to 780 percent when expressed as an annual percentage rate (APR)[1] The borrower writes a postdated check to the lender in the full amount of the loan plus fees. On the maturity date, the borrower is expected to return to the store to repay the loan in person. If the borrower doesn't repay the loan in person, the lender may process the check traditionally or through electronic withdrawal from the borrower's checking account.
If the account is short on funds to cover the check, the borrower may now face a bounced check fee from their bank in addition to the costs of the loan, and the loan may incur additional fees and/or an increased interest rate as a result of the failure to pay. For customers who cannot pay back the loan when due, members of the national trade association are required to offer an extended payment plan at no additional cost. In states like Washington, extended payment plans are required by state law.
Payday lenders require the borrower to bring one or more recent pay stubs to prove that they have a steady source of income. The borrower is also required to provide recent bank statements. Individual companies and franchises have their own underwriting criteria.