Quick answer
A payday loan is a short-term, high-cost loan, generally $500 or less, that is typically due on your next payday. You give the lender a post-dated check or access to your account, and it takes the full balance plus a fee on the due date. A $15 per $100 fee on a two-week loan works out to an APR of almost 400%, according to the CFPB.
Payday loans are simple on the surface, which is part of why they are expensive. Here is the whole process, start to finish.
The basics
The CFPB says there is no set definition of a payday loan, but most share these features:
| Feature | How it usually works |
|---|---|
| Amount | Small, generally $500 or less; many states set a limit |
| Term | Due on your next payday, typically 2 to 4 weeks |
| Repayment | One lump sum of the loan plus fees |
| How the lender gets paid | A post-dated check or electronic access to your account |
| Credit check | Payday lenders generally do not use your credit reports from the three nationwide bureaus |
| Collateral | None, but the lender has access to your account |
Step by step
- Apply in a store or online with ID, proof of income and an account.
- Authorize repayment with a post-dated check or an electronic debit authorization.
- Get the money in cash, by check, by deposit or on a prepaid card.
- On the due date, the lender cashes the check or debits your account for the full amount.
What it costs
The CFPB says state limits on fees range from $10 to $30 for every $100 borrowed, and $15 per $100 is common. Borrow $300 and you owe $345 two weeks later. That $45 on a two-week loan works out to an APR of almost 400%. See payday loan interest rates for the math, or run your own numbers in the payday cost calculator.
If you cannot pay on the due date
- Rollover: where state law allows, you pay just the fee and the due date moves, but you still owe the full balance. See payday loan rollovers.
- Failed debit: the lender may charge late and returned-payment fees, and your bank may charge an overdraft or NSF fee.
- Extended repayment plan: some states require lenders to offer one. Ask.
The pattern to watch for
CFPB research published in 2016 found that more than 80% of payday loans were rolled over or reborrowed within 30 days. A loan meant to last two weeks often lasts months.
Before you borrow, read alternatives to payday loans.
If you need more time than one paycheck, compare installment loans, which spread the cost over months with APRs on our network from 5.99% to 35.99%. Check eligibility there or call (800) 236-7761.
Payday, cash advance and title products are high-cost short-term credit. They are intended for short-term needs only and are not a long-term solution. This page does not match you for payday loans. Rates and examples are illustrations; a lender's written disclosure shows your actual terms, and approval is never guaranteed.
Frequently asked questions about how do payday loans work? costs, repayment and risks
What do I need to get a payday loan?
The CFPB says payday lenders generally require an active bank, credit union or prepaid card account, proof of income, valid ID, and that you be at least 18.
How long do I have to repay a payday loan?
Usually until your next payday. The CFPB says the due date is typically two to four weeks from when the loan was made.
Do payday loans build credit?
No. The CFPB says payday loans are generally not reported to the three nationwide credit reporting companies. An unpaid loan sent to collections can still hurt your credit.
Are payday loans legal everywhere?
No. Some states do not allow payday lending, and many that do cap fees and loan sizes. Check with your state regulator.
Sources
- CFPB: What is a payday loan? (accessed 2026-10-09)
- CFPB: What do I need to qualify for a payday loan? (accessed 2026-10-09)
- CFPB: What are the costs and fees for a payday loan? (accessed 2026-10-09)
- CFPB: What is an APR and why is it higher than the interest rate for my payday loan? (accessed 2026-10-09)
- CFPB: Can taking out a payday loan help rebuild my credit? (accessed 2026-10-09)
- CFPB: Do I have to put up collateral for a payday loan? (accessed 2026-10-09)
Last updated 2026-10-09. How we research and update pages.