About Payday Advance Loans

Check cashers, finance companies and others offer small, short-term loans that go by a variety of names: payday loans, cash advance loans, check advances, post-dated check loans or deferred deposit check loans.

A borrower gives a personal check payable to the lender for the amount borrowed plus a fee. The company gives an instant cash loan for the amount of the check minus the fee. Fees charged for payday loans are usually a percentage of the face value of the check or a fee charged per amount borrowed. Example: every $50 or $100 loaned. If the borrower "rolls-over" the loan for another two weeks - more fees are incurred.

Under the Truth in Lending Act, the cost of payday loans or any type of credit must be disclosed. Among other information, the finance charge (dollar amount) and the annual percentage rate or APR (the cost of credit on a yearly basis), must be provided in writing.

A cash advance loan secured by a personal check - such as a payday loan - has higher interest in comparison to other types of credit. If you write a personal check for $115 to borrow $100 for up to 14 days, the check casher or payday lender agrees to hold the check until your next payday. Then, depending on the particular plan, the lender deposits the check, you redeem the check by paying the $115 in cash, or you roll-over the check by paying a fee to extend the loan for another two weeks. In this example, the cost of the initial loan is a $15 finance charge and 391 percent APR.

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