Payday Loan Glossary

Following are terms and definitions common to the payday loan business:

Annual percentage rate (APR): This rate represents the annual cost of credit charged on a loan. The Federal Truth in Lending Act requires payday lenders to disclose the APR to prospective borrowers.

Bad credit: This refers to a low FICO score or a poor credit rating. This usually results from a borrower’s late payments, defaults and other credit damaging actions. It’s difficult to obtain loans with bad credit.

Bankruptcy: A federal court proceeding where debts are eliminated (Chapter 7) or reorganized for the purpose of paying them back (Chapter 11).

Cash advance loan: A short-term loan which is generally in the range of $100-$1000. It bridges the gap until then next payday (They’re also called payday loans).

Collateral: Assets such as a car or home that are pledged to a creditor as an assurance of debt repayment. They usually have a similar value as the debt.  If borrower defaults, the lender may sell off the assets to satisfy the debt.

Community Financial Services Association of America (CFSA): This national organization ensures that the payday loan industry operate in a responsible manner. It gives some reassurance to borrowers that they can purchase legitimate short-term loans.

Credit check: Detailed credit reports from one or several of the three leading credit bureaus (Experian, TransUnion, and Equifax). It contains information on the general creditworthiness of the potential borrower.

Credit history: This report includes data on a borrower’s loan repayment behavior, available credit lines and behavior with credit.

Credit report: This is a summary of a borrower’s credit history including outstanding debts, available credit, credit inquiries, and public records such as court judgments or bankruptcy filings. It translates this date into a  credit score.

Credit reporting agency (CRA): They gather financial information about borrowers. The three major credit reporting agencies in the United States are Equifax, TransUnion, and Experian.

Credit score: This three-digit number from 300 to 900, is a measure of a borrower’s creditworthiness based on payment history. A credit score is usually classified as excellent, good, fair, or poor.

Creditworthiness: A borrower’s willingness, likelihood and ability to repay a loan or credit extended to him or her.

Debt Management Company: Debt management companies negotiate with creditors to lower interest rates and monthly payments. They help reduce calls and try to lower or cancel late fees.

They typically have other counseling services to help their clients work through their financial matters.

Default: When a borrower fails to make timely payments on their loan and eventually stops paying altogether.

Deferred deposit lending: In this loan transaction, a lender gives a borrower a cash advance. The borrower, receives a postdated check, and holds it for deposit on the day the loan is due. This is a short term loan from one to two weeks.

Direct deposit: Electronically depositing funds into a borrower’s account.

Fee: A charge that payday lenders assess on borrowed funds.

Finance charge: The total cost of credit. It includes processing fees, service charges, and interest.

Interest: A percentage rate that a borrower pays in order to borrow money.

Maturity date: The final due date for the principal and finance charges on a loan.

No credit check personal loan: This type of loan does not require a credit check to be performed as a condition of getting the loan.

No fax payday loan (faxless payday loan): This short-term cash advance which tides borrowers over to their next payday, can be obtained very quickly.  Individuals may apply for and receive a no fax payday loan online or by calling. They do not have to fax their bank account and employment information to the lender.

Online payday loan: This type of loan is available on the internet 24/7. No credit check is required. It also makes it possible for consumers to easily, quickly and safely apply from the comfort of their homes.

Applicants must meet the following requirements:

• You must be a citizen of the United States
• You must have a job or be receiving regular benefits of some kind  like social security or a  pension
• You must have a valid checking or savings account (some lenders require the account to have been active for at least three months)
• You must have a steady income (at least $1,000 per month)
• You have to be at least 18 years old

The lender direct deposits the funds into the borrower’s bank account.

Over-the-limit fees: For each month that their balance exceeds their loan limit, borrowers are charged an over the limit fee. It usually ranges from $29 to $39.

Payday loan quote: A free and secure online where you can compare payday loan rates from several lenders.

Payday loans (also known as faxless, deferred deposit, fast cash, cash advance, payday advances, quick loans and online payday loans) These consumer loans are unsecured, short-term (typically two weeks or less), loans ranging generally from $100 to $1000.

Payday loans may be obtained online, via fax or phone, or at a brick and mortar store.

No credit check is done on these loans.

The lender direct deposits the funds into the borrower’s account. On the due date, the loan amount and finance charge are debited.

Payday loan calculator: This online calculator allows consumers to calculate the total interest, annual percentage rate (APR), and total repayment amount of a payday loan.

Predatory lending: This refers to lending practices where there’s a failure to disclose loan terms and cost and/or the deceptive persuasion of prospective borrowers to consent to abusive and inequitable loan terms, such as unreasonably high fees.

Prepaid debit card: This allows consumers to control their spending by setting up a credit line that corresponds to the funds deposited in their account.

This helps repair their credit. Approval is guaranteed, and there are no interest charges.

Prepayment penalty: The fee that lenders charge borrowers who pay a portion of or their entire loan prior to the maturity date.

Principal: The loan amount borrowed.

Rollover: Also known as extensions, rollovers allow borrowers to renew their cash advances. Rollovers charge an additional fee to extend payback to the next payday.

Many states have passed legislation limiting the number of rollovers that lenders may grant in a specified time period.

Truth in Lending Act (TILA): This federal legislation requires clear and conspicuous disclosures to borrowers about loan costs and terms.

Unsecured loans: Personal loans issued for amounts ranging from $500 to $250,000. They do not require borrowers to pledge their home or property as collateral. They involve less paperwork and are approved faster than traditional credit. Borrowers must provide proof of income and usually verification of employment.

Borrowers may use the funds for any purpose.