Glossary for Payday Loans
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 payday lender or looking for a payday loan for 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 and payout.
Balance - Balance is the figure associated with how much money remains to be paid on a loan. 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 a payday 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 on a loan. If a borrower fails to make payments as agreed, the lender has a right to take ownership of the property. In the case of a payday loan, a check for the agreed upon amount of the loan plus agreed fees has been given. In online payday transactions, permission is often granted to deduct the agreed fees from a borrower's checking account.
Default - A default on a loan is to fail to make payment as 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 payday loans a flat fee for the service of borrowing money. Critics of payday loans often accuse lenders of high interest rates, but payday loans don't typically accrue interest at all.
Interest - Interest is a percentage of the original amount someone borrows, 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 - A payday loan is a small - or micro - cash loan given with a post-dated check written against the borrower's own checking account. When the borrower is paid in two weeks or so, depending on his or her pay 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 payday lender to lender, but is usually expressed in terms of one-hundred dollar increments loaned.
Principal - Principal is the amount someone borrows, and does not include any of the fees or interest that will be charged on the loan. With a payday loan, for instance, if you borrow five-hundred dollars and it is lent at a rate of $15 per hundred, then of the total owed when a borrower is paid would be $575 due. Of that total to be repaid to the payday lender, $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 payday cannot be repaid after two weeks, or as agreed between the borrower and their payday lender. If such cases, a payday 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.
