What characterizes payday loans?

Payday loans are characterized by being short-term loans that are typically based on a borrower's upcoming paycheck. The fundamental premise of these loans is that they provide quick cash to individuals who may need immediate funds to cover unexpected expenses. Borrowers agree to repay the loan, along with any associated fees or interest, by their next payday, usually within a two-week time frame.

This setup is appealing for those who lack sufficient funds to cover their bills or urgent purchases. However, these loans often come with high interest rates, which can lead to financial difficulties if borrowers cannot repay the loan on time and may result in borrowing more to cover previous debts. This cycle can quickly escalate financial stress for those who rely on payday loans as a recurrent source of funding.

In contrast, other options such as requiring collateral, low interest rates with flexible terms, and long-term vehicle loans do not align with the typical structure and characteristics of payday loans.