What Is a Payday Loan?

What Is a Payday Loan?

By Charles Joseph | Editor, Financial Affairs
Reviewed by Corey Michael | Senior Financial Analyst

A payday loan is a type of short-term borrowing where an individual borrows a small amount at a very high rate of interest. This loan is generally taken with the agreement that the borrower will repay the loan on their next payday. Payday loans are typically used for emergency expenses to cover shortfalls until the next paycheck arrives.

Related Questions

1. Can anyone get a payday loan?

Generally, payday loan lenders require that borrowers must have an open and active bank account, be at least 18 years old, and have a steady income source. However, the specific criteria might vary depending on the lender.

2. Are payday loans risky?

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Yes, payday loans can be risky because they come with high interest rates and fees. If not repaid on time, the borrower may find themselves in a continuous cycle of debt.

3. Can a payday loan affect my credit score?

Yes, if not paid back in time, payday loans can impact your credit score negatively. Some lenders might report to credit bureaus, which can lower your credit score if payments are late or missed.

4. Are there alternatives to payday loans?

Yes, alternatives to payday loans include personal loans, credit card cash advances, and asking for an advance on your paycheck directly from your employer.

5. Can you have more than one payday loan at a time?

It depends on the regulations where you live. In some states, you can have more than one payday loan, but in others, it is prohibited. It is always recommended to do your research before taking any loan.