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Payday loans glossary
An A-to-Z list of terms you should know before taking out this high-cost form of financing.
While payday loans can be helpful when you need money fast and don’t have the credit to qualify for a traditional personal loan, they’re not without risks. Because of the high costs and penchant for predatory lenders, it’s especially important to make sure you understand the terms laid out in your loan agreement before signing the dotted line.
| Term | Term |
|---|---|
| Annual percentage rate (APR) | An expression of a loan’s interest rates and fees as a percentage rate for the whole year. |
| Auto title loan | A secured short-term loan that uses your car as collateral, usually up to 50% of its value. You hand the car title either to your lender or a third party. If you aren’t able to repay it, your lender can repossess your car to recoup its losses. |
| Balloon payment | A large payment at the end of a loan, common on short-term loans with interest-only repayments. |
| Bounced check | A check that was written for more than the amount available in the account it’s associated with. |
| Cash or check advance loan | A type of payday loan that requires you to repay it in full once you receive your next paycheck. |
| Check fraud | When someone writes a check they know is going to bounce. Payday lenders can sue you for fraud if you provide them with a postdated check that bounces. |
| Collection agency | A company hired by lenders to get borrowers to pay what they owe on an unsecured loan that they are either delinquent on or have defaulted on. |
| Credit check | When a lender reviews your credit score and history to evaluate your track record on repaying debts. Many payday lenders don’t run a credit check. |
| Default | When a borrower misses several loan repayments or has given up on attempting to repay a loan. |
| Deferred deposit | Also known as a post-dated check, this is a check that’s dated some time in the future, usually when your loan is due. |
| Electronic transfer | Also known as an ACH transfer, this is when funds are moved directly from one bank account to another. |
| Finance charge | A fixed fee that you pay in exchange for being able to borrow a payday loan. |
| Loan fees | Charges added to your loan on top of interest, including application fees, origination fees and money transfer fees. Your loan’s APR is an expression of your loan’s interest and fees as a percentage rate over a year. |
| Loan shark | An illegal lender that typically charges sky-high interest rates. |
| Maturity date | Also known as the due date, this is the day you’re required to completely repay your loan, in addition to interest and fees. |
| Military consumer protection | Active members of the military and veterans have additional consumer protections when it comes to short-term loans. Laws vary by state and can include caps on APRs, maximum loan amounts and restrictions on borrowing before deployment. |
| Post-dated check | A check with a date written sometime in the future, sometimes used as collateral for a payday loan. |
| Loan fees | Charges added to your loan on top of interest, including application fees, origination fees and money transfer fees. Your loan’s APR is an expression of your loan’s interest and fees as a percentage rate over a year. |
| Loan shark | An illegal lender that typically charges sky-high interest rates. |
| Maturity date | Also known as the due date, this is the day you’re required to completely repay your loan, in addition to interest and fees. |
| Military consumer protection | Active members of the military and veterans have additional consumer protections when it comes to short-term loans. Laws vary by state and can include caps on APRs, maximum loan amounts and restrictions on borrowing before deployment. |
| Post-dated check | A check with a date written sometime in the future, sometimes used as collateral for a payday loan. |
| Risk-based pricing | When a lender adjusts the interest, fees or loan amount because a borrower is seen as likely to have trouble repaying a loan. |
| Sent to collections | When a lender transfers a loan with overdue payments to a collection agency to recover the amount owed. |
| Subprime lender | A lender willing to work with borrowers who have poor credit. These typically charge high interest and fees. |
| Unsecured loan | A loan that isn’t backed by collateral, meaning that the creditors can’t come after your house, car or any valuables if you can’t repay your loan. |
| Usury laws | Local laws that cap the APR on certain types of loans. |
| Wage garnishment | When a lender is allowed to take money directly from a borrower’s paycheck after a court order — typically after a borrower is sued by a lender for defaulting on an unsecured loan. |
