Frequently Asked Questions about Payday Loans

Payday loans are commonplace in today's financial services market.

However, many consumers still have questions about these short-term lenders. Here are answers to some common questions about payday loans.

1. How do payday loans work?

Payday loans are short-term loans that typically provide borrowers with a 14- to 31-day repayment period. Payday loans generally come with higher interest rates than other types of loans but extremely high fees can be avoided by repaying a payday loan by its original due date.

2. What are two benefits of payday loans?

The two primary benefits associated with payday loans are speed and convenience. Payday loans typically require little to no paperwork and are generally processed within 24 hours.

3. What are two ways to apply for a payday loan?

The first way in which a borrower can apply for a payday loan is by providing a personal check that is made out for the borrowed amount plus finance charges. The second way in which a borrower can apply for a payday loan is by applying online, through which the applicant provides his or her general bank account information.

4. What are the general qualifications for a payday loan?

To qualify for a payday loan, a borrower typically must:

• Receive a regular income through employment or a government program;
• Earn at least $1,000 per month if employed or receive at least $800 per month from a government program;
• Be at least 18 years old; and
• Have an active savings or checking account.

5. What are two ways in which a borrower can repay a payday loan?

Two ways in which a borrower can repay a payday loan include paying the lender directly and allowing the lender to deposit the original check.

6. What can a borrower do if he or she is not able to repay the loan by the due dat?

A borrower is able to extend the payday loan repayment period by paying an additional finance charge.

7. How are payday loan finance charges determined?

A payday loan's finance charges, also referred to as the loan's annual percentage rate (APR), are typically based on a percentage of the total borrowed amount, generally 10 percent to 25 percent.

8. What are steps one can take in order to use payday loans responsibly?

Steps a borrower can take in order to use payday loans responsibly include:

• Shopping around for the best payday loan rate offers;
• Borrowing only the amount actually needed;
• Reading the terms and conditions of the payday loan carefully and asking questions if anything is unclear;
• Doing what is necessary to repay the loan in full by the repayment due date; and
• Avoiding the use of one payday loan to pay off a previous payday loan.

9. What factors should a borrower consider when shopping for a payday loan lender?

Factors that should be considered when shopping for a payday loan lender include:

• A lender's finance charges;
• The maximum loan amount provided by the lender;
• The lender's repayment terms;
• The convenience afforded by the lender; and
• The lender's borrower qualification standards.