Loan Basics
How a short-term loan is actually put together.
Before you consider any short-term loan, it helps to know exactly what you'll owe, when, and what happens if the date slips.
The Loan Lifecycle
From application to payoff
You apply
A borrower requests a small-dollar loan — usually $100 to $1,000. Lenders often ask for proof of income, a bank account, and ID, and may skip a traditional credit check entirely.
Fees are disclosed
Federal law (the Truth in Lending Act) requires lenders to show the finance charge, APR, total owed, and due date before you sign anything.
You repay — or roll it
On the due date, the lender collects the full balance plus fees, often by post-dated check or ACH debit. Short on funds, and a rollover tacks on another fee cycle.
Terms worth knowing cold
Finance charge
The flat dollar cost of the loan. A $300 loan with a $15-per-$100 fee carries a $45 finance charge — the real price of borrowing.
Annual Percentage Rate (APR)
The cost of borrowing stated as a yearly rate. A $15 fee on a $100 two-week loan works out to roughly 391% APR — far above a credit card or personal loan.
Rollover / renewal
Paying just the fee to push the due date out. Each rollover adds cost and can quietly turn a two-week loan into a long-term debt.
ACH authorization
Bank account access many lenders require for automatic repayment. Know exactly when and how funds will be pulled before you agree to it.
State regulation
Payday loan rules differ enormously by state — some cap fees, some ban the product outright, others allow it with few limits. Know your state's rules.
NSF / overdraft fees
If your account can't cover a lender's withdrawal attempt, your bank may charge its own NSF fee — stacked on top of the loan fee itself.
Rollover risk: federal data shows more than 80% of payday loans are rolled over or renewed within two weeks. A $300 loan renewed four times can add $180+ in fees before the original balance is touched.
What a lender is required to disclose
Under the federal Truth in Lending Act, every lender must clearly spell out the following before you sign:
- The total finance charge, in dollars
- The annual percentage rate (APR)
- The total amount financed
- The total amount you'll repay
- The payment schedule and due date
- Any penalty fees for late or missed payments
- Rollover or renewal terms and their cost
- Your right to cancel within a set window, where state law allows it
Run your own numbers
See exactly what a loan would cost you before you make any decision.