Payday Glossary

Annual percentage rate (APR): This figure represents the total cost of consumer credit on an annual basis, including interest and all additional charges such as points, closing fees, private mortgage insurance, and prepaid interest. APR enables borrowers to compare the cost and interest rates of different loans. Pursuant to the Truth in Lending Act (TILA), creditors must disclose the APR to borrowers before the latter signs the loan agreement.

Bad credit payday loan: This type of loan targets individuals with a tarnished credit history (i.e. due to bankruptcy) or no credit and who are in need of short-term, quick emergency funds. Bad credit payday loans, which are issued without a credit check and waive the collateral requirement, typically charge fees ranging from $10 to $30 per $100 borrowed. Applicants must meet the following requirements: 1) be at least 18 years old; 2) have a steady job with a minimum monthly income of $1,000, and 3) have a bank account. Funds are deposited into the borrower's checking account within 24 hours, and the loan is usually repaid on the next payday or in two weeks. The lender automatically deducts the amount due from the customer's checking account.

Bad credit personal loan: This financial product, which is designed for consumers with no credit, poor credit, or in another credit-impaired state such as repossessions or bankruptcy, does not require any collateral. Bad credit personal loans provide fast cash for borrowers in a financial bind and may be used for a variety of purposes such as 1) debt consolidation, 2) home renovations, 3) auto repair, or 4) any significant expenditure. These types of payday loans, which may be obtained online, help borrowers rebuild or repair their credit.

Bankruptcy: This federal court proceeding involves the legal assistance of a business or individual to wipe out outstanding debts or repay them under the court's protection. There are two forms of bankruptcies: 1) Chapter 7 known as liquidation bankruptcy and 2) Chapter 13 or reorganization bankruptcy. Under Chapter 7, a borrower's property is sold and the proceeds used to pay off the lenders. In a Chapter 13 bankruptcy proceeding, the debtor submits a payment plan with the court and agrees to make partial payments to lenders. Some debts are required to be paid in full, while others may be paid in part or unpaid. Bankruptcy filings remain on credit reports for up to 10 years.

Cash advance: Alternatively known as payday loans, post-dated check loans, or deferred-deposit check loans, this product provides fast and convenient, emergency cash for consumers who need to bridge the financial gap between paydays. Cash advances, which are usually in the amount of $500, are issued without a credit check. Cash advance loans may serve numerous purposes, ranging from medical bills and car expenses to vacations, household bills, and debt settlement.

Collateral: This constitutes the assets or item of value that a borrower pledges as security for a loan. Collateral protects lenders from default by borrowers and enables them to settle the debt by transferring ownership of the assets to the former.

Community Financial Services Association of America (CFSA): This national organization, which represents the payday loan industry and its clients, promotes laws and regulations that protect cash advance borrowers, ensure access to short-term loans, and encourage responsible and safe industry practices. More than 150 payday loan companies are members of the CFSA, and these represent almost 22,000 cash advance stores in the United States.

Credit check: During the loan application process and prior to the extension of credit, lenders, with the exception of most payday advance providers, review a prospective borrower's credit history. Lenders conduct a credit check to determine an applicant's creditworthiness by examining the latter's credit report, which typically provides the following information: 1) amount of credit available, 2) extent of liabilities, 3) payment history, and 4) NSF checks and late payments, among other items. Credit reporting agencies (CRAs) gather and sell this data to lenders for purposes of performing a credit check.

Credit counseling: This form of professional counseling focuses on assisting consumers to re-establish their credit and repay their debts through : 1) budget counseling, 2) money management, 2) proper use of credit, 3) savings plans, 4) debt management programs (DMPs) that lower their monthly payments, put an end to collection calls, and reduce or eliminate finance charges, 5) bankruptcy counseling, 6) housing counseling, and 7) a thorough analysis of their income, expenses, and assets.

Credit history: Compiled by a consumer reporting agency (CRA) and later sold to employers, banks, and other organizations, this represents a record of a business or individual's borrowing and payment history. Specifically, credit history provides the following information: 1) borrower's personal identification, 2) public records, 3) credit lines used, 4) employment record, 5) present and previous addresses, 6) loan amount, and 7) payment history.

Credit score: Also known as the FICO score, this number rates a borrower's creditworthiness and ability to repay and estimates the likelihood that he or she will make timely payments in the future. Credit scores, which typically range from 300 to 850, are based on data from the credit report. This information is compiled by the three leading credit reporting agencies in the country, namely TransUnion, Experian, and Equifax, and is then sold to lenders. Credit scores are calculated on the basis of the following criteria: 1) borrower's payment history (35% of the FICO score), 2) amount owed (30%), 3) length of credit history (15%), 4) new credit (10%), and 5) other criteria (10%).

Credit union: This non-profit financial institution that is federally or state-chartered enables its members to receive loans from their collective savings. Unlike other savings institutions (i.e. savings and loan, banks), members with accounts are the owners of a credit union. Credit unions offer an extensive range of services, such as personal loans.

Debt consolidation: This debt-management strategy involves combining high-interest loans or debt into a single loan that features a lower monthly payment and interest rate and a longer repayment period. Debt consolidation, which also offers the convenience of making only one monthly payment to one creditor, may involve combining several secured loans into one loan backed by an asset serving as collateral (i.e. a home) or several unsecured loans into one unsecured loan.

Debt management plans (DMPs): This is a bill payment agreement, whereby borrowers agree to pay off their debt by making monthly deposits to a credit counseling agency, which then disburses the money to the lenders. DMPs offer numerous benefits including 1) lower monthly payments, 2) waived or reduce interest rates, 3) re-aging of the account, 4) ceasing of collection calls, 5) elimination of over-the-limit and late fees, 6) bill consolidation, 7) automatic deposit from bank account, and 8) prevention of shut-offs, lawsuits, repossession, and foreclosure.

Faxless cash advance: This quick paperless, short-term loan, which is usually due in two weeks, requires little documentation, no fax machine, and may be obtained without a credit check. Most payday loan providers accept online applications, which are easy to fill out and may be completed in a matter of minutes. The transaction is processed instantly and in a secure, confidential manner. Upon approval, the funds are wired to the borrower's bank account.

Finance charge: This is the fee that lenders charge for the use of credit or loan renewal. The finance charge is not equivalent to an interest rate, but includes all supplementary fees such as balance transfer fees, late fees, service fees, and interest.

Loan rollover: This process involves the re-negotiation or automatic renewal of a loan upon maturity for an additional fee. The principal of the loan remains the same, with the borrower paying off only the loan fees. The terms and conditions of the rolled-over loan are the same as those of the original loan, and the customer is issued a new loan due date.

Maturity date: This represents the date on which a loan becomes due in full. For cash advance loans, the maturity date is synonymous with the consumer's next payday.

No faxing payday loan: This type of quick short-term loan, which waives the faxing requirement, tides cash-strapped borrowers over to the next payday. No faxing payday loans are easy to apply for and offer fast processing and approval (usually in a matter of minutes). Applicants need not fax any documents such as income stubs and bank statements to the lender; rather financial and personal data are transferred over a secure online server. Prospective borrowers must 1) have an active bank account dating at least three months and 2) be regularly employed and earn a minimum monthly income of $1,000. Upon approval, borrowers receive the funds in their account within 24 hours.

Non-sufficient funds (NSF) fee: This is the fee that banks usually charge customers who withdraw cash from an ATM, write a check, make an electronic bill payment, or utilize their debit card for an amount exceeding the balance in their checking account. Lending institutions respond to such transactions by either choosing to pay the overdraft or not. If they refuse the bounced check, customers are charged a NSF fee. To avoid such fees, consumers should keep a tab on their banking transactions, such as deposits, and know the available balance in their account.

No teletrack cash advance loan: This temporary, unsecured loan, which waives the credit check requirement, helps borrowers cover urgent and unexpected expenses and fill the financial gap between paydays. Consumers are eligible for no teletrack cash advance loans even with a tarnished credit history, with their job sufficing as security for the loan. Applicants must simply fulfill the following requirements: 1) be 18 years of age, 2) have a regular income and earn at least $1,000 per month, and 3) have an active bank account with direct deposit. The lender directly deposits the loan funds into the customer's checking account within one business day. This type of payday loan may be applied for by phone, online, or in person.

Online cash advance: This small, fax-free temporary loan, which helps consumers fill the financial gap and does not require a credit check, may be obtained quickly, 24/7, and from the comfort of their home. The application, which is simple and short, is completed entirely online, and prospective borrowers need not fax any documents. Applicants' personal information is protected through the encryption provided by an SSL connection. Online cash advance lenders approve applications instantly and deposit funds automatically into their clients' bank account within 24 hours.

Overdraft protection: This service offered by banks covers consumers who write checks that exceed the balance in their bank account, or overdrafts. When there are insufficient funds for the withdrawal, the lending institution transfers funds from a line of credit to the customer's checking account to offset the negative balance. Overdraft protection, which is available for a fee and restricted to a pre-set dollar amount, is applicable to checks, electronic transfers, debit card purchases, and ATM withdrawals.

Payday loan: Also referred to as a cash check advance or payday advance, this short-term loan which typically ranges from $100 to $500 and is for a two-week duration, helps consumers cover emergency expenses between pay periods and obtain cash in a simple, convenient, and expedient manner. Typical requirements are 1) active bank account, 2) minimum 18 years of age, and 3) a steady monthly income of $1,000. No credit check is performed. Customers write a check to the payday loan provider in the amount of the loan and interest charges, after which the latter deposits the check on the former's next payday. The loan must be repaid by the borrower's next payday. Online payday loans take only a few minutes to complete and just a few hours to be approved.

Personal loan: These loans, which may be either secured or unsecured, may be utilized for a myriad of purposes ranging from a college education and hospital expenses to a vacation and car repairs. Personal loans boast different interest rates depending on a borrower's credit score, the lender, and whether they are secured or unsecured. Generally, borrowers can obtain longer repayment terms with secured personal loans than with their unsecured counterparts. The amount that consumers can borrow depends on their expenses, credit history and rating, income, extent of equity in their home, and whether or not the loan is secured.

Personal loan for bad credit borrowers: This type of loan, which is available online, specifically targets individuals who cannot obtain funding from a conventional lender and have either no financial history or a poor credit score caused by credit infirmities such as county court judgments, bankruptcy, arrears, or late payments. Loan funds are deposited into the client's bank account within 24 hours of qualification. Personal loans for bad credit borrowers, which may be utilized for various objectives such as debt consolidation and home improvement, are an effective financial tool for credit rebuilding and repair.

Principal: This represents the initial loan amount that a consumer borrows and on which interest is computed. Principal includes interest charges and fees.

Secured personal loan: To be eligible for this type of loan, prospective borrowers must pledge collateral such a home, vehicle, or other valuable as a form of security against the funds. In the event that the borrower defaults on the loan, the lender sells the asset to satisfy the outstanding balance. Due to the presence of collateral, secured personal loans generally carry a lower interest rate than unsecured personal loans.

Secure Socket Layer (SSL): This is a protocol that encrypts and protects the confidentiality cash advance transactions, credit card information, and personal and other confidential data, making it available solely for the individual intended for viewing it. To determine whether a website has an SSL connection, visitors should see whether the webpage contains a URL that starts with https, rather than http.

Teletrack: This credit reporting mechanism maintains a record of the bank history of borrowers with no credit or with poor credit resulting from returned checks, NSF, closed accounts, and unpaid balances. Individuals with a positive banking history are not documented by Teletrack.

Truth in Lending Act (TILA): This federal law extends consumer protections to the public in credit transactions by requiring creditors to disclose, in a conspicuous and understandable manner, important terms of the loan agreement. Some of the items that must be disclosed include 1) terms and conditions, 2) interest rate, 3) late payment fees, 4) points and fees, 5) finance charges, 6) application fee, 7) pre-payment penalties, and 8) one-time service fees.

Unsecured personal loan: Borrowers need only make a promise to repay the funds and are not required to pledge any security (i.e. home or car) as collateral in order to qualify for this type of loan. Consumers may utilize unsecured personal loans, also known as signature loans, for such expenditures as college tuition, debt consolidation, and medical bills. In the event of non-payment of the loan amount due by the borrower, the lender will initiate collections proceedings.