Payday loans key terms

ACH authorization

An Automated Clearing House (ACH) authorization is a payment authorization that gives the lender permission to electronically take money from your bank, credit union, or prepaid card account when your payment is due. You can revoke this authorization.

Annual Percentage Rate (APR)

The Annual Percentage Rate (APR) is the annual cost of credit, including fees, expressed as a percentage. The APR is a broader measure of the cost to you of borrowing money since it reflects not only the interest rate but also the fees that you have to pay to get the loan. The higher the APR, the more you’ll pay over the life of the loan.

Deposit advance

Deposit advances are short-term, high-cost loans. With deposit advance, banks and credit unions will usually pay themselves back automatically when the next electronic deposit to the customer’s account is made, regardless of source.

If the amount of the incoming deposit is not enough to pay back the loan, the bank or credit union will repay itself out of subsequent deposits. Typically, if any loan balance remains after 35 days, the bank or credit union will automatically charge the customer’s account for the remaining balance, even if that causes the account to become overdrawn.

Lead generators

Lead generators are websites that collect your information - including your Social Security and checking account numbers - and then send your request for a payday loan to network of lenders. Your application will then be sold to the lender that offers to make you a loan. Lead generators might not find you the lowest cost loans, and you should be cautious of sites that promise they will.

Military Lending Act (MLA)

The Military Lending Act (MLA) is a Federal law that provides special protections for active duty servicemembers like capping interest rates and fees on many loan products. MLA says that you can’t be charged an interest rate more than a 36 percent Military APR, which includes certain fees, on most types of consumer loans. The MLA applies to active-duty servicemembers, including those on active Guard or active Reserve duty, and covered dependents. Payday loans are covered under MLA.

Non-sufficient funds (NSF) fee

An NSF or non-sufficient funds fee may occur when your check or electronic authorization is not paid due to a lack of funds in your account. This is commonly referred to as a “returned” or “bounced” check.

Online payday loan lender

Some payday loan services are available through online lenders. Loan applications are completed on a lender’s website and funds are transferred by direct deposit. When it’s time to repay, the lender will take money from your bank account with via an ACH debit. Payday loans are typically a single payment loan, but if the loan requires multiple payments, the online lender will need to obtain an ACH authorization from you and provide you with a copy of terms of the authorization.

Renewal or rollover loan

Some payday lenders give borrowers the option to renew or rollover their loans if they cannot afford to pay off the loan when it’s due. However, many states limit or ban these renewals or rollovers. Generally, renewing or rolling over a payday loan means you pay a fee to delay paying back the loan. This fee does not reduce the amount you owe. You will still owe the principal and fees for the rollover.

Repayment plan

A repayment plan lets you repay the loan in smaller installments over a longer period of time. Whether you can get an extended repayment plan will depend on your state law or on the payday lender’s policy. This repayment plan may be offered for free or it might carry an additional fee.