A recent Payday Lending in America (opens new window) report found that about 12 million people use payday loans for quick access to cash. These loans usually come with high fees and interest charges. Payday loans are also known by other names, including cash advance loans and check loans. People have different reasons for taking out a payday loan. But before you consider using a payday loan, make sure you fully understand all the loan features involved.
Characteristics of a payday loan
Payday loans are often small-dollar loans, such as $500. They generally have higher fees and interest rates than other types of loans. For instance, a typical two-week payday loan with a $15 per $100 fee would have an annual percentage rate (APR) of almost 400%. Borrowers typically promise to repay the loan with their next paycheck. In some cases, the loan is structured with payments over a longer period of time.
The loan funds may be disbursed to you by cash or a check, loaded onto a prepaid debit card, or electronically deposited into your checking account. To repay the loan, you often must give the lender authorization to access your account, or write a post-dated check instead.
Payday Loan Alternatives
You may have alternatives to a costly payday loan. Some federal credit unions offer a less expensive loan product to their members, especially if they have direct deposit or a stable credit history.