Payday Loan

Payday loans are usually for small amounts and are often easy to obtain, with minimal credit checks. Borrowers typically repay the full amount, plus fees, within a few weeks.

The costs are extremely high. A lender might charge a fee of 15 for every 100 borrowed for two weeks. That may not sound like much, but expressed as an annual percentage rate, it is equivalent to around 390% a year, far higher than credit cards or personal loans.

The main danger is the debt cycle. Borrowers who cannot repay on time may roll the loan over or take out a new one to repay the old one, adding more fees each time. A small loan can quickly grow into a much larger debt.

Because of these risks, many countries and states regulate payday lending heavily. Some cap interest rates and fees, limit how many times a loan can be rolled over or ban payday loans entirely. Alternatives may include credit union loans, employer salary advances, hardship funds or agreeing a payment plan directly with the creditor.