Payday Lending FAQ

What is a payday loan?

• Short-term loan designed to meet immediate needs
• Generally three features
  • Small amounts
  • —Typically due your next payday
  • You must give lenders access to your checking account or write a check for the full balance in advance that the lender can deposit when the loan comes due.

How much does a payday loan cost?

• —A typical two-week payday loan with a $15 per $100 fee equates to an annual percentage rate (APR) of almost 400%.
• See my previous blog post for an example based upon Colorado law.

Are payday loans more expensive than credit cards?

• Yes, typical credit card APRs are between 12% – 30%.  Furthermore, credit cards can be paid back over the course of time whereas payday loans are typically due all at once.

What does it mean to roll over or renew a payday loan?

• Usually this means that you pay a fee to delay payback of the loan.  This is in addition to the original loan fees.  Sometimes these renewals will place the original fees into the principal of the new loan.  This allows fees to be charged on the new, higher loan amount.  Many states limit or ban roll overs.  You can find more information on each states roll over policy in the resources listed below.

Do online payday lenders need to follow state regulations?

• Yes, online payday lenders must follow the regulations of the state of residence of the borrower.

Are there special regulations for Military borrowers?

• Yes, payday lenders must follow the Military Lending Act (MLA).  More information can be found here: Rights under the Military Lending Act

Do I need to get a credit check for a payday loan?

• No, payday lenders typically do not check the three major credit bureaus to make their determination.  Some lenders use alternative credit reporting services to determine creditworthiness.

What are some alternative solutions to payday loans?

• —Borrow from a credit union or other small loan lender. Be sure you understand all the fees and terms before you sign.
• Put off the expense until you have the money. For example, if you need money to repair your car, find other transportation until you have the funds to fix the car.
• —Request overtime or secure a part-time job to cover the unexpected expense.
• Contact your creditor and ask for more time to pay or a repayment plan.
• —Use your credit card or obtain one if you do not currently have one. Even if you have to get a cash advance, it will be much less expensive than a payday loan.

Where can I get more information?

• —Consumer Federation of America – Payday Loans—Great resources on state specific regulations—www.paydayloaninfo.org 
• —Consumer Financial Protection Bureau—Government agency that provides information and complaint service for consumers—www.consumerfinance.gov 
• —National Consumer Law Center—Nonprofit agency focusing on consumer rights issues—http://www.nclc.org