Payday Loans

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Payday Loans: Fast Cash and Costly

What are payday loans and how do they work?

A recent Payday Lending in America (opens new window) (You will be leaving NCUA.gov and accessing a non-NCUA website. We encourage you to read the NCUA's exit link policies. (opens new page).) 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.

Learn more about Payday Loan Alternatives.

Related Resources

DID YOU KNOW?

Auto title loans, also known by such names as car title loans and motor-vehicle equity lines of credit are similar to payday loans but are secured by the title to a consumer’s vehicle.

Consider alternatives

Before taking out a high-cost payday loan, consider talking with your creditors to negotiate more time to pay bills; shopping for a credit offer with lower costs; borrowing from family or friends; or contacting your state or local government to see if any emergency assistance programs are available.

If you proceed with a payday loan, be sure to comparison shop for the lowest fees and penalties. Borrow only what you can afford to pay back. Avoid getting a payday loan from more than one lender at a time. Read the disclosures the lender must give you under federal law. Know when your payment is due and repay the loan on time and in full. Set up a budget that includes an emergency fund.

State laws and other factors can influence how much you can borrow, the fees you are charged, and, whether payday loans are permitted.

Last updated on 11/28/18