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Payday Loan Information

A payday loan (also called a paycheck advance or payday advance) is a small, short-term loan that is intended to cover a borrower's expenses until his or her next payday. Typical loans are between $100 and $500, on a two-week term and have interest rates in the range of 390 percent to 780 percent (APR). The loans are also sometimes referred to as cash advances, though that term can also refer to cash provided against a prearranged line of credit such as a credit card.

Though payday lending is primarily regulated at the state level, the United States Congress passed a law in October 2006 becoming effective on Oct. 1, 2007 that caps lending to military personnel at 36% APR as defined by the Secretary of Defense. The Defense Department called payday lending practices "predatory", and military officers cited concerns that payday lending exacerbated soldiers' financial challenges, jeopardized security clearances, and even interfered with deployment schedules to Iraq.

Some federal banking regulators and legislators seek to restrict or prohibit the loans not just for military personnel, but for all borrowers, because the high costs are viewed as an unnecessary financial drain on the lower and lower-middle class populations who are the primary borrowers.

Lenders say these loans are often the only option available to consumers with bad credit or who cannot get a bank loan, credit card, or other lower-interest alternatives. Research indicates that payday loans may assist financially disadvantaged consumers in surviving financial "shocks" and thus be welfare-enhancing. Critics counter most borrowers find themselves in a worse position when the loan is due than they were when they took the loan, with many getting trapped in a cycle of debt.

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