How Does a Payday Loan Work?

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A payday loan is given by a company to an individual who is able to provide evidence that they work and get paid somewhere. Find out why payday loans come with excessive interest with help from a registered financial consultant in this free video on credit and personal finance.

Part of the Video Series: Credit & Personal Finance
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Video Transcript

This is Patrick Munro talking about how does a pay day loan work. In American many individuals do not manage their credit as they best could and as a result there is a new industry that has emerged because some individual's credit is so bad that it is difficult for them to get anything but an advance on their next pay check. What happens is companies will get very small amounts of money normally, 2 to $500 from a store front location to individuals that will come in and give a driver's license and a pay stub showing that they actually work at a given place or locale. But what happens is these centers will charge an exorbitant amount of interest, sometimes ranging as high as 35% and beyond for the purpose of turning around this cash to an individual. The term is called payday loan. This type of interest known as usury has come under Federal and State Guideline scrutiny so the payday loan association has emerged and they are self policing themselves at this point. Make payday loans your last resort however. This is Patrick Munro talking about the way payday loans work.

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