Loan Basics
How short-term loans are really structured.
Before you consider any short-term loan, it pays to understand exactly how they work, what you'll owe, and what happens if you can't repay on time.
The Loan Lifecycle
From application to repayment
Application
A borrower applies for a small-dollar loan — typically $100 to $1,000. Lenders may require proof of income, a bank account, and a government ID. Many do not perform traditional credit checks.
Fee Disclosure
Lenders must disclose the finance charge, annual percentage rate (APR), total amount owed, and the due date before you sign. Federal law (Truth in Lending Act) requires this disclosure.
Repayment or Rollover
On the due date, the full amount plus fees is collected — often via post-dated check or ACH debit. If funds aren't available, you may face NSF fees, and a rollover adds another fee cycle.
Key Terms to Know
Finance Charge
The dollar amount a lender charges for the loan. On a $300 loan with a $15-per-$100 fee, the finance charge is $45. This is the real cost you're paying to borrow.
Annual Percentage Rate (APR)
The cost of borrowing expressed as a yearly rate. A $15 fee on a $100 two-week loan equals roughly 391% APR — much higher than credit cards or personal loans.
Rollover / Renewal
When you can't repay on time and pay only the fee to extend the loan. Each rollover adds more fees and can turn a short-term loan into a long-term debt trap.
ACH Authorization
Many lenders require access to your bank account for automatic repayment. Understand exactly when and how funds will be withdrawn before agreeing to this.
State Regulations
Payday loan rules vary significantly by state. Some states cap fees or ban payday loans outright. Others allow high-cost products with few restrictions. Know your state's rules.
NSF / Overdraft Fees
If your bank account doesn't have sufficient funds when the lender attempts to collect, your bank may charge NSF fees — adding cost on top of the loan fee.
Rollover warning: The CFPB reports that more than 80% of payday loans are rolled over or renewed within two weeks. A $300 loan that's rolled over four times can cost $180+ in fees before you repay the principal.
What Lenders Are Required to Tell You
Under the federal Truth in Lending Act, lenders must clearly disclose the following before you sign any loan agreement:
- The total finance charge in dollars
- The annual percentage rate (APR)
- The total amount financed
- The total amount you must repay
- The payment schedule and due dates
- Any penalty fees for late or missed payments
- Rollover or renewal policies and their associated costs
- Your right to rescind the loan within a specific period (where applicable by state law)
Use our cost calculator
See exactly what a short-term loan will cost before making any decision.