What is a payday loan?

A payday loan is characterized as a short-term, high-interest loan. These loans are typically designed to meet urgent financial needs and are often repaid on the borrower’s next payday, hence the name. Borrowers typically use payday loans to cover unexpected expenses, such as medical bills or car repairs, when they do not have sufficient funds available.

These loans come with high interest rates, which can significantly increase the overall cost of borrowing. The ease and speed of obtaining a payday loan often make them appealing, but the associated high costs and potential for debt cycles can lead to greater financial difficulties if not managed properly. Overall, understanding payday loans is crucial because they emphasize the importance of evaluating financial options carefully, especially those marketed as quick solutions to immediate cash flow issues.