Payday Loans Explained — How They Work and What They Really Cost
A clear explanation of how payday loans work in the US, what they cost in real terms, the state-by-state legal landscape, and when alternatives make more sense.
What is a payday loan?
A payday loan is a small, short-term, unsecured loan typically due in full on the borrower’s next pay date. Amounts usually range from $100 to $1,000, and terms are commonly two to four weeks.
What they actually cost
Payday loan fees translate into very high APRs — often 300–500% or more — because the underlying fee per dollar borrowed is large relative to the very short repayment window.
Where they’re legal
Payday lending rules vary substantially by US state. Some states cap the APR at levels that effectively prohibit payday lending; others allow them with restrictions on amount, term, and rollovers.
Alternatives to consider
Before taking a payday loan, consider:
- Credit-union small-dollar loans
- Negotiating a payment plan with the original creditor
- Employer-sponsored earned-wage access
- A credit-builder loan from a community development financial institution
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