The payday loan industry generates billions of dollars a year. States are cracking down on payday lenders, and the industry is regulated in the states where it is still legal.
Payday lenders require you to furnish a copy of your driver’s license, and information about your employment and bank accounts. The loan is usually for a couple of weeks (the time until your next paycheck). The lenders do not perform a credit check, and you write them a post-dated check for the amount you want to borrow plus a fee. The fee is usually a “borrowing” fee and an account set-up fee. The lenders will then deposit your check after your payday if you have not already paid off the loan. If your bank account cannot cover the amount of the loan, you will then owe the original loan plus added interest. If you know you cannot pay off the loan in time, you can pay the borrowing fees (or finance charge) in order to renew the loan. The annual percentage rate (APR) for a payday loan often starts over 400 percent!