How payday loans work

A payday loan usually gives a relatively small amount to be repaid on or near the next payday. The lender may seek access to a bank account or another payment method. Rules and available products differ by jurisdiction.

Read the agreement before applying

Write down the cash received, finance charge, annual percentage rate where disclosed, repayment amount and exact due date. Ask what happens if a payment fails or you cannot repay on time. Do not sign with an empty or unclear cost field.

Test the repayment against your budget

The important question is whether the full amount can be paid while still covering rent, food, utilities and other essential bills. If repayment creates another shortfall, the loan may start a cycle of repeat borrowing.

Explore other routes

The FTC and CFPB both advise comparing alternatives before taking an expensive short-term loan. A biller payment plan, employer advance, credit union or local assistance may be more suitable in some circumstances.

This page preserves the topic of the old Walsaq route. It is not an application or a recommendation for a specific lender.

The four numbers that matter

Before deciding, put four numbers on one page: the cash you receive, the finance charge, the total you must repay and the date on which it must be paid. The APR can help compare loans with different terms, but the total dollar cost and due date show the immediate effect on the next pay period.

The FTC gives a simple illustration: borrowing $500 for two weeks at $15 per $100 produces a $75 charge and a $575 repayment. That fee is 391% APR when expressed as an annual rate. This arithmetic is an example rather than a current price quote. A different term, state law or product may change every number.

Read the payment authorization

Find out whether the lender will cash a check, debit a bank or credit-union account, charge a prepaid card or require another payment method. Ask what happens if the balance is too low on the due date. Returned-payment charges from the lender and the financial institution can compound the initial cost. Keep the signed agreement and any authorization for electronic withdrawals.

If the due date cannot be met

Do not assume a rollover solves the problem. The CFPB describes how a renewal charge can leave the original principal untouched. Some states require an extended repayment plan, while others have different rules; a lender may also voluntarily offer one. Ask about that option before a missed payment rather than accepting a new short-term loan without comparing its full cost.

A decision in context

Compare the expense with the cost of negotiating a bill, obtaining a credit-union loan or using local assistance. A smaller amount borrowed or a longer repayment schedule can make a difference, although each option has its own terms. If the only way to repay is another high-cost loan, the schedule is the problem.

Read the companion pages on loan fees and online borrowing checks before entering data.