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Payday LoansMore than 12 million Americans a year take out payday loans: small-dollar, short-term loans that provide borrowers with cash that is usually due to the lender by the date they receive their next paycheck. Despite payday lenders commonly framing these loans as solutions for unexpected expenses, most Americans who take out payday loans use them to cover regular bills, like rent and utilities. Unlike other loans, borrowers don't need a credit score to get a payday loan—they just need a valid ID, proof of income, and a bank account or prepaid card. Often capped at $500, the average payday loan is about $375. Interest rates on these loans are usually high—the typical annual percentage rate on a payday loan is about 400%. However, these loans are usually only intended to last until the borrower's next paycheck rather than a full year. So for a two-week loan, that APR roughly equates to borrowers paying between $10 and $30 per $100 borrowed. Roughly 80% of payday loan borrowers either default or roll over their loans—increasing the total amount they have to pay. Critics argue that payday loans are inherently predatory, pointing to their high interest rates and other common industry practices that keep low-income consumers trapped in debt. Supporters of payday lenders argue that without them, unbanked individuals and many people living in poverty would have a tough time accessing cash when they need it.Explore Payday Loans

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Military bases were once targets for payday loans and other predatory lendingThe Military Lending Act of 2006—a federal law—capped the interest a lender can charge an active-duty soldier at 36% after the Department of Defense criticized payday lenders for targeting young soldiers with high-interest, short-term loans. However, many towns near military bases still have predatory businesses that critics say take advantage of army families living paycheck to paycheck. (Some readers may experience a paywall.) The New York Times Some argue that advance payday apps aren't markedly different from payday loansSome apps, like EarnIn, allow users to get money from their paycheck in advance. These apps access users' banking information, allowing the company to immediately take back any borrowed money and track users' financial situations to evaluate their risk. Unlike traditional payday lenders, these apps often waive the right to sue users who don't pay back the initial principal and don't charge interest, but rather ask users for a tip. (Some users may experience a paywall.) The Atlantic Payday loans typically have higher interest rates than cash advancesCash advances and payday loans are both short-term loans that allow borrowers to access cash quickly. Payday loans are much shorter-term, often due in two weeks or by the borrower's next paycheck, and have much higher interest rates. Business Insider Supporters of payday loans say banning them would harm low-income AmericansMany argue for a federal policy that would cap interest rates for these loans, but payday lenders say that would make it impossible for them to make money, effectively forcing them to close up shop. As a result, some argue that the policy would prevent low-income, unbanked, and traditionally high-risk borrowers from accessing credit when they need it. (Some users may experience a paywall.) The Atlantic People who take out payday loans often know they are a bad dealDespite common criticism that payday lenders take advantage of uninformed borrowers, some people who take out payday loans know they are usually a bad deal, but often feel like they don't have any other options. Payday loans are often considered a symptom of poverty. (Some users may experience a paywall.) The Wall Street Journal Houston, Texas depends heavily on payday loansIn 2024, people in Houston took out payday loans at a higher rate than the national average. In Texas, the average payday loan interest rate is 664%. Title loans are a type of short-term loan with high interest ratesTitle loans allow borrowers to use their vehicle's title as collateral for a short-term loan. Similar to payday loans, title loans often have high interest rates and are mostly structured to last around 30 days. If title loans aren't repaid, the lender can take possession of the borrower's vehicle. ProPublica Research shows that payday lending advertisements target minoritiesA University of Houston Law Center study found that despite only making up 23% of payday loan recipients, Black people appear in 35% of advertisements. Similarly, 77% of the physical payday lending and auto title lending storefronts in the study targeted racial minorities. In 2014, there were more payday loan stores than McDonaldsThat year, there were more than 20,000 payday lenders in the US, according to the St. Louis Federal Reserve, and 14,267 McDonald's locations. Politicians and consumer advocates frequently cited this statistic as a selling point for increased regulation. NBC News Google banned ads for loans due within 60 days and interest rates exceeding 36% or higherIn 2016, Google said it would stop allowing payday lenders to advertise on the search engine. According to the company, this decision was made to protect users from deceptive and harmful financial products. NPR Payday lenders spent more than $5M on lobbying efforts in 2025Payday lenders largely oppose rate cap policies, increased borrower risk-assessment requirements, and other regulations that would effectively shutter their industry. In 2025, the payday lending industry lobbied against interest rate limits on payday loan apps. Banks have increased small loan programs since 2018, upping competition for payday lendersOne of the reasons payday lending flourished for nearly two decades is that most banks charged high overdraft fees and didn't offer small loans. However, since 2018, banks have increased their small loan options. Supporters say this provides safer alternatives for consumers, as banks are subject to more regulatory measures and are less likely to allow consumers to keep rolling over loans. In 2025, the 'two strikes and you're out' rule took effect to protect consumers from repeated attempts to withdraw moneyAfter years of being delayed by litigation, a 2024 US Supreme Court ruling upheld a law that prevents lenders from attempting to take payments from accounts with insufficient funds more than twice without reauthorization. This tactic is commonly used by payday loan companies, which technically require repayment on the day borrowers receive their paychecks. NPR Tribal lenders have charged up to 600% APR on short-term loansSome Native American tribes use their exemption from state legislation to bypass regulations on usury laws. Similar to payday lending, some tribal lenders have charged up to 600% APR on short-term loans. ProPublica North Carolina was the first state to ban payday lendingIn 2001, the North Carolina state legislature let a 1997 law that permitted the small-dollar loans expire—effectively banning payday loans. In 2005, the NC bank commissioner ruled that Advance America, a payday lending company, had been operating in the state illegally. Federal law requires payday lenders to meet certain transparency requirements, but states have their own regulationsFederal law treats payday lending like other lines of credit, meaning it requires lenders to disclose the loan's interest rate and its "finance charge," a dollar amount expressing the full cost of the loan. But states have their own regulations around payday lending, hence why it isn't allowed in every state and why the industry looks so different across the country. These regulations are often part of a state's usury laws. 'Usury' is the act of lending money at an excessively high interest rateLaws regulating predatory lending are called usury laws and vary from state to state. Payday lending has historically been exempt from some states' usury laws, and some lenders have found loopholes in state laws or business structures that allow them to provide short-term loans with high interest rates. Investopedia The costs and fees for a payday loan include a 'finance charge'Payday lenders typically make money via finance charges, a percentage or dollar amount that the borrower owes the lender per $100 borrowed. While the finance charge can range from $10 to $30 for every $100 borrowed, this would equate to an annual percentage rate of almost 400 percent for a two-week loan. Consumer Financial Protection Bureau Modern payday lending came about in the late 1990sIn the early 1900s, unlicensed "salary lenders" used to give consumers one-week loans at annualized percentage rates of more than 100%. But wage garnishment and financially abusive practices led some states to create special licenses for lenders and implement rate caps to protect consumers. In the 1990s, a series of deregulations in various states opened the door for the modern payday lending industry to take off. Pew Research Center Payday lenders usually require borrowers to post-date a check or provide access to an electronic bank accountIf borrowers can't pay back the loan, they can be subject to overdraft fees from their bank and other fees from the payday lender—further exacerbating the debt borrowers face. Consumer Financial Protection Bureau Near-universal banking masks a large underbanked shadow systemFDIC data indicates 128 million households have a checking account, the vast majority (96% in 2024). But more than 14% of households are underbanked, meaning they have accounts but also rely on nonbank services such as check cashing, payday loans, or prepaid cards. FDIC What is buy now, pay later?The buy now, pay later industry allows consumers to buy something immediately and pay in installments, typically without the need for applications or credit scores associated with credit cards. BNPL has boomed in the last decade, led by fintech companies Affirm, Klarna, and Afterpay, which have targeted young adults. Some critics say BNPL is a reinvented version of payday loans that allow borrowers easy access to cash with relatively few barriers. The Wall Street Journal Calculate: Do you need to file for bankruptcy? About 77% of American households had some debt at the end of 2023. However, when debt becomes crushing, it's time to consider a management plan or a bankruptcy filing. This calculator helps explore whether debt is manageable based on inputs like medical debt, payday loans, and gross annual income. Nerd Wallet A third of Americans don't have the cash they need to cover a $500 emergencyThat's according to a 2023 Federal Reserve survey. So what does the average American in this camp do when, say, their car breaks down? This video compares six of the most common ways Americans get money when they don't have it. As it turns out, some of them opt for payday loans, which this video argues are predatory. Vox

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