Getting the Loan
The standard term of a payday loan usually is two weeks. Say you want to borrow $100. The payday lender asks you to write a postdated check for that amount, plus a loan fee. These fees vary by lender, but $15 per $100 borrowed is common. So you write a check for $115, and the lender gives you $100 cash and holds onto your check for two weeks. Alternatively, the lender directly deposits $100 into your checking account, and you authorize the lender to deduct $115 from your account in two weeks.
Repaying the Loan
After two weeks, the lender deposits your $115 check, or directly deducts $115 from your checking account. Now the loan is settled. However, if you don't have the money in your account to repay the loan — and many people who resort to payday loans do not — then you can renew or "roll over" the loan. That means getting another two weeks to repay, for another $15 fee.
High Interest Rates
On the face of it, a $15 fee for borrowing $100 looks like 15 percent interest. But in lending, interest rates typically are expressed in annual terms. A 15 percent interest rate for two weeks equates to an annual rate of about 390 percent. That's far higher than you would pay for, say, a cash advance on a credit card or a personal loan from a bank or credit union.