A payday loan is a short-term loan with a very high interest rate, usually secured by a post-dated personal check for the amount of the loan, interest and any fees. In some cases, this is simply deposited by the lender, but online and electronic payday loans are available as well.Continue Reading
Payday loans require the borrower to verify income and employment with the lender. The requirements are usually not that stringent, since the company makes its money by charging high interest rates. For instance, the interest and fee required to borrow $100 for two weeks might be $20 or more, giving many of these loans an annual percentage rate of 400 percent or more.
Due to state regulations, payday loans are not available in every state. Some states have outlawed the practice due to the high interest rates and fees, which can cause low-income users of the service to become trapped in a cycle of renewing loans over and over, incurring higher and higher fees each time. Unfortunately, many of those forced to turn to these services for emergency funds do so because they do not have any other options available to them, given the financial history requirements for credit cards and other short-term lending options.Learn more about Credit & Lending