What is a payday loan and why are they dangerous?

Payday loans are often problematic for the people who use them because they tend to be favored by borrowers who may not have cash or other financing options readily available. One of the biggest pitfalls that can happen with payday loans is when a borrower falls into a cycle of repeatedly extending their loan.

How is a payday loan different from a regular loan?

The main difference between a payday loan and a personal loan is the basic terms. A payday loan is an extremely short-term loan usually due within a month, while the term for a personal loan is at least two years. Payday loans also have a small maximum amount, usually $500 or less.

How long do you have to pay back a payday loan?

Short terms. You typically need to repay a payday loan within two to four weeks of the initial loan.

What type of people use payday loans?

The majority of borrowers who use payday loans are low-income individuals making less than $30,000 per year who fell behind on their monthly expenses, including rent, utility bills, or car payments, according to the Consumer Financial Protection Bureau.

When do you have to pay a payday loan?

These loans are called payday loans: short-term cash loans in which payment is due typically due within two weeks—or close to your next payday. In fact, The Economist estimates that roughly 2.5 million American households take out payday loans each year.

How are payday loans different from other types of loans?

Payday lenders often base their loan principal on a percentage of the borrower’s predicted short-term income. Many also use a borrower’s wages as collateral. Lenders generally do not conduct a full credit check or consider your ability to repay the loan. 6

Where can I get a short term payday loan?

That’s short-term, as in no more than a few weeks. They’re usually available through payday lenders operating out of storefronts, but some are now also operating online. They work best for people who need cash in a hurry. That’s because the entire application process can be completed in a matter of minutes.

How are payday loans based on credit score?

Payday lenders often base their loan principal on a percentage of the borrower’s predicted short-term income. Many also use a borrower’s wages as collateral. Other factors influencing the loan terms include a borrower’s credit score and credit history, which is obtained from a hard credit pull at the time of application.