Payday loans are a type of short-term loan that can help you meet your immediate cash needs until you receive your next paycheck. These small, high-cost loans typically charge triple-digit annual percentage rates (APR) and payments are usually due within two weeks or close to your next payday. A payday loan is a type of credit based on your income, with the equity being a part of your next paycheck. Payday loans are also known as cash advance loans or check advance loans.
They are fast cash for small amounts that need to be repaid in a single payment. If the loan is not fully refunded by the due date, additional fees are usually charged and the due date is extended. This can lead to a vicious cycle of reactivation over and over again, incurring more and more commissions each time. When your loan is approved, the funds are deposited into the verified bank account.
The lender will also require you to write a postdated check to pay both the loan amount and the interest charged to you. Payday loans can seem like a solution to an emergency bill or debt, but they can end up costing you more than the problem you are trying to solve. Each state has different laws regarding payday loans, even if they are available through a payday lender in a store or online. Depending on where you live, you can get a payday loan online or through a physical branch with a payday lender.
The Military Lending Act (MLA) provides expanded protections for military personnel, including a 36% Military Annual Percentage Rate (MAPR) cap for a wider range of credit products, including payday loans, vehicle title loans, application for repayment loans, deposit advance loans, installment loans and open lines of credit without warranty. Applying for a payday loan does not affect your credit score or show up on your credit report because payday lenders often don't perform a credit check. Some states do not have payday loans because these loans are not allowed by state law or because payday lenders have decided not to do business at the interest rate and charges allowed in those states. Payday lenders offer longer-term payday installment loans and request authorization to electronically withdraw multiple payments from the borrower's bank account, which are usually due on each payment date.
Payday loans are made at payday loan stores or at stores that sell other financial services, such as check cashing, title loans, rent-to-own and pawns, depending on state licensing requirements. The Consumer Financial Protection Bureau (CFPB) found that 20% of payday borrowers defaulted on their loans and more than 80% of payday loans contracted by borrowers were extended or re-borrowed within 30 days. To avoid getting trapped in this cycle of debt, it is important to consider alternatives to payday loans.