Get to Know the Industry Vocabulary
When it comes to payday loans, like any business there are terms and specific lingo that get bandied about. Whether you are working for a lender or looking for financial relief yourself, it helps to be informed. For that reason, we are including a few glossary terms that might be of interest:
APR - APR; the acronym for Annual Percentage Rate. APR is the cost of borrowing money, aside from fees, calculated as a percentage of the principal amount borrowed. APR is displayed in writing on a loan agreement. Federal law mandates that lenders disclose APR on every loan they approve.
Balance - Balance is the figure associated with how much money remains to be paid to the provider. Unlike the principal, a balance can include both principal (see below) and interest accrued, as well as any fees or penalties on the loan.
CFSA- Community Financial Services Association of America or CFSA is an industry group formed to control and monitor the ethics, standards and practices of this burgeoning lending product.
Cash advance - Considered to be synonymous with a payday loan, a cash advance is money lent with a borrower's paycheck as the collateral. The term paycheck loan is also used in certain places, like the United Kingdom.
Collateral - The real property that is offered up as a security. If a customer fails to take care of the balance as agreed, the lender has a right to take ownership of the property. In the case of borrowing in a retail store location, a check for the agreed upon amount of the principal plus agreed fees has been given. In online transactions, permission is often granted to deduct the agreed fees from a consumer's checking account.
Default - A default is to fail to adhere to what was agreed, and the lender has classified the note as uncollectible. In payday loans, certain conditions apply, and measures are taken to ensure that defaults are low in this industry.
Finance charge - A finance charge is the amount of money charged for the servicing of the loan. This can be a percentage of interest that compounds daily, for example, or, as in the case of cash advances a flat fee for the service of requesting and receiving money. Critics often accuse lenders of high rates, but these services don't typically accrue interest at all.
Interest - This is a percentage of the original amount someone takes out, multiplied over time, times the accrued interest. Most loans are adding to the amount of interest calculated by incorporating the interest into the equation. That means compound interest: interest calculated on the interest and the principal.
Payday loan - This is a small - or micro - cash loan given with a post-dated check written against the consumer's own checking account. When the individual is paid in two weeks or so, depending on his or her schedule, the check is cashed by the lender. The amount of this post-dated check is the agreed upon amount: the fee plus the loan amount. The fee varies from lender to lender, but is usually expressed in terms of one-hundred dollar increments dispersed.
Principal - Principal is the amount someone borrows, and does not include any of the fees that will be charged on the service. With a short-term financial service, for instance, if you take out five-hundred dollars and it is lent at a rate of $15 per hundred, then of the total owed when and individual is paid would be $575 due. Of that total to be repaid to the provider, $500 is principal. Seventy-five is the lender's fee, also due at the time the principal is paid.
Rollover - Under certain rare circumstances, a balance cannot be repaid after two weeks, or as agreed between the consumer and their provider. If such cases, a lender may be willing to extend the period for repayment until the next paycheck. While it comes with additional per-hundred fees, a rollover can be a great contingency plan. The number of rollovers is limited in most states.