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Cash Advance Glossary

Annual percentage rate (APR): An APR or Annual Percentage Rate is the actual cost charged for the loan. It is figured using the actual interest rate, the loan amount, any added costs (like handling fees), and the terms of the loan, including how long the borrower has until the money must be paid back. An APR is set by the lender according to a number of factors such as how much risk is involved and whether or not there is collateral for the loan.

Usury: Usury means charging an exorbitant or illegally high interest rate on a loan. Each state sets a rate that is the highest amount of simple interest that can be legally charged to an individual for a loan. National banks or other national lenders are governed by federal usury rules. The rates for these types of lenders are based on the Federal Reserve discount rate. This type of rate fluctuates with the market.

Payday loan: A payday loan, cash advance, or payday advance is a special type of short-term, unsecured loan. These loans offer instant cash without a credit check. In return, lenders receive a post-dated check or automatic withdrawal form that allows them to remove money from the customer’s bank account at a set time in the future—usually two weeks or the next time a paycheck is automatically deposited in the borrower’s account. The amount paid back includes a flat fee that includes handling fees and interest.

Predatory lending: This type of lending practice involves aggressively finding customers who need loans but who do not have access to the traditional loan process through banks and credit companies. The lender misrepresents the terms of the loan and then bullies the customers into renewing at increasingly higher fees as they fail to pay back the original loan.

Term of loan: This is the length of time between receiving the cash advance and having to pay it back plus the fees. The term of a cash advance loan is usually two weeks to one month.

Interest rate: This is the percentage of the original loan that is added to the amount that has to be paid back to the lender. For instance, a simple interest rate of 4% a year on a loan of $100 would be $4. Compound interest on the same loan would be figured on the amount of the original loan that has not been paid back plus any finance charges. This type of interest is usually figured monthly on the remaining balance. For instance, on that same unpaid $100 loan, the charge for the second month would be 4% of $104. Each month, the fee to be paid would increase because it is compounded on the full unpaid amount.

Unsecured loan: This is a loan that is not backed by collateral (or real property) that the lender can seize if the money is not repaid.

Credit risk: This is the likelihood that a borrower will default on (or not be able to pay back) a loan or have to declare bankruptcy.

* Cash-Advance-USA.org provides information and research on cash advances/payday loans. We are not a payday lender or broker, nor are we necessarily affiliated with the companies profiled on this site. Not all products and services are available in each state.