How Do Payday Loans Work | ACFA

How do payday loans work, a payday loans is a quick loan that can be used to pay for urgent cash needs. It usually costs $500 and is due by your next payday.

Regardless of whether they are offered by an online payday lender or a local check-cashing shop, these loans can have high costs that can be difficult to repay. They should only be used as a last resort after all other options have been exhausted.

Payday loans are usually fast-cash for small amounts and must be repaid in one payment. Additional fees may be charged if the loan is not paid in full by the due dates. The due date can also be extended. This can result in a vicious circle of re-upping, which will incur more fees each time.

Payday loans can increase your chance of filing for bankruptcy.

How much does it cost to borrow $400

Let’s say you are short on rent for whatever reason and need $400 fast. You take out a payday loan.

Payday lenders don’t charge any interest rate like a bank loan, credit card, or credit card. Instead, they charge a fixed fee for each $100 you borrow. It is one of the most expensive methods to obtain fast cash compared to other short-term loans.

A $400 payday loan would cost $80 to get, with a flat fee equal to $20 for each $100 borrowed.

According to, an average credit card charge a 5% fee for cash advances and a 24.8% APR. This adds up to $29 if the loan is repaid within 30 days. found that the average credit card debt of 16.03% APR will earn $6 per month if repaid within 30 days.

Alert: How do the fees add up 

Many people use payday loans for only a few days, but they find themselves unable to repay them. This is dangerous. The original $80 fee will be charged each time you extend your $400 loan. These fees quickly add up to more than the original loan amount.

There are more reasons to be cautious

Checks returned

To pay back lenders, many lenders will require that you write a post-dated cheque. This is simply a way to date a check in the future and writes a check. The lender will cash your check on that date. They may charge you additional fees if your check bounces. Your bank might also charge you, usually a penalty of $35.


Payday lenders could take money from your bank account. The lender and the bank could impose insufficient funds fees or overdraft charges if the funds are unavailable.

Better alternatives 

Consider these alternatives before you look for a payday loan. To see if your creditors or loan servicer can extend your payments, you should first call them. You may have to pay a late fee or additional fees.

A small loan may be available from your credit union or a small loan company. You might also consider a cash advance from your credit card.

You should always compare APRs and related costs to ensure you select the most affordable option. The Federal Trade Commission provides more information about your options.

If you decide to work with a lender, make sure to review their ratings and reviews at Better Business Bureau.

You may find yourself in a position where you need emergency cash. It is time to review your budget and determine how to save more.


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