- How payday loans work
- Why the cost can be deceptive
- Canada
- United States
- Repayment risk
- Online privacy and debit authority
- What to compare before borrowing
- Alternatives
How payday loans work
A payday loan typically provides a relatively small amount for a short period, often connected to the borrower’s pay schedule. The lender may require proof of income and a bank account and may arrange repayment by electronic debit.
Why the cost can be deceptive
A flat fee can look modest in dollars while representing a very high annualized cost because the loan lasts only a short time. The CFPB gives a U.S. example where $15 per $100 for two weeks is nearly 400% APR. The actual permitted price depends on state law.
Canada
FCAC says payday loans are expensive short-term borrowing and notes that provincial rules regulate fees and penalties in several provinces. Its current consumer guidance says the maximum cost in regulated provinces listed on its page is $14 per $100 borrowed, while other jurisdictions can be governed differently. Always verify the current rule where you live.
United States
Payday-loan availability, maximum amounts, pricing and rollover rules vary by state. Do not assume an app available for download is authorized to lend in your state. Verify the provider with the relevant state regulator.
Repayment risk
Because the full obligation can come due quickly, repayment can collide with rent, food, transportation and other bills. A short-term loan becomes especially risky when the only realistic way to repay it is to borrow again.
Online privacy and debit authority
Online lenders may request banking information and electronic-payment authorization. The CFPB advises consumers considering online payday loans to examine total cost, repayment, alternatives and the safety of personal information.
What to compare before borrowing
- Exact amount deposited
- Fee per $100 or other pricing measure
- APR where disclosed
- Total amount due
- Due date
- Failed-payment consequences
- Rollover or extension rules
- License or registration
Alternatives
FCAC suggests considering options such as more time to pay bills, an employer pay advance, family help, a line of credit, overdraft protection or a credit-card cash advance. The least costly realistic option depends on your own available terms.
Sources & further reading
AppLoans prioritizes primary consumer-protection and regulatory sources. Rules and product terms can change; verify current requirements in your jurisdiction.
- Financial Consumer Agency of Canada — Payday loans
- Consumer Financial Protection Bureau — Payday loan costs and fees
- Consumer Financial Protection Bureau — Considering an online payday loan