# Pay Day Loan Basics

Payday loans are

If you want to borrow $300 from a pay day lender, you pay a fee, usually $20 per $100 that you borrow. So you write a check to the pay day lender for $360.

**short-term cash loans**based on the borrower’s personal check held for future deposit or on electronic access to the borrower’s bank account. Borrowers write a personal check for the amount borrowed plus the finance charge and receive cash.### What is the difference between a cash advance and a pay day loan?

A payday **loan** or a **cash advance loan** is a **loan** for a short time. You pay a fee to borrow the money, even if it is for a week or two. A pay day **loan** or **cash advance loan** can be very expensive. Before you get one of these **loans**, consider other ways to borrow.

### How much can pay day lenders charge up to?

The loan amount is due to be debited the next pay day. The fees on these loans can be a percentage of the face value of the check — or they can be based on increments of money borrowed: say, a fee for every $50 or **$100** borrowed. The borrower is charged new fees each time the same loan is extended or “rolled over.”

**How Much are you Paying for that Loan?**

If you want to borrow $300 from a pay day lender, you pay a fee, usually $20 per $100 that you borrow. So you write a check to the pay day lender for $360.

At the end of the two weeks, if you’re like most people, you have to roll the loan over and pay another $60. The $120 you pay to borrow $300 for one month translates into a 520% annual percentage rate (APR).

The annual percentage rate is calculated on the cost of rolling the loan over every two weeks, for a year. You can calculate it by multiplying the two-week interest charge ($60) by 26 two-week periods per year ($60 x 26 = $1,560). You’d pay $1,560 to use $300 for one year. To figure out the annual percentage rate, divide the amount you’d pay for the loan in a year, by the loan amount: $1,560 /300 = 5.2. Multiply by 100 to get 520%. Some sources say they’ve seen payday loans with APRs as high as 7,000%!

The annual percentage rate is calculated on the cost of rolling the loan over every two weeks, for a year. You can calculate it by multiplying the two-week interest charge ($60) by 26 two-week periods per year ($60 x 26 = $1,560). You’d pay $1,560 to use $300 for one year. To figure out the annual percentage rate, divide the amount you’d pay for the loan in a year, by the loan amount: $1,560 /300 = 5.2. Multiply by 100 to get 520%. Some sources say they’ve seen payday loans with APRs as high as 7,000%!