A payday loan is a type of short-term borrowing where a lender will extend high-interest credit based on your income. Its principal is typically a portion of your next paycheck. Payday loans charge high interest rates for short-term immediate credit. They are also called 'cah advance' loans or 'check advance' loans.
Payday loans charge borrowers high levels of interest and do not require any collateral, making them a type of unsecured personal loan. These loans may be considered predatory lending as they have extremely high interest, don’t consider a borrower’s ability to repay, and have hidden provisions that charge borrowers added fees. As a result, they can create a debt trap for consumers. If you’re considering a payday loan, then you may want to first take a look at safer personal loan alternatives.
Payday loan providers are typically small credit merchants with physical stores that allow on-site credit applications and approval. Some payday loan services also may be available through online lenders.
To complete a payday loan application, you must provide pay stubs from your employer that show your current level of income. Payday lenders often base their loan principal on a percentage of the borrower’s predicted short-term income. Many also use a borrower’s wages as collateral. Lenders generally do not conduct a full credit check or consider your ability to repay the loan.
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