'Money: It's Personal' — Understanding payday loans

SAN ANTONIO – If you need a bit more cash to last you until your next paycheck comes in, you may be considering a payday loan. They're quick, short-term and they're available at many brick-and-mortar locations, but they may come at a very high price.

You hear them in advertisements: Get your money fast and with minimal effort by using a payday loan. But how exactly do these types of loans work?

The short-term, high-interest rate loans are convenient for those with limited time and low funds.

A borrower writes a personal check to the lender for the amount they want to borrow, including a fee for the money they're borrowing. The lender then gives the customer their money, minus the fee, and agrees to hold the check until the loan payment is due, which is usually on the borrower's next payday.

The fees for borrowing can be quite steep. The Consumer Finance Protection Bureau said they can range from $10 to $30 for every hundred dollars you borrow.

Customers who are unable to pay the full amount on their payday are sometimes able to roll over their loan, which means they would pay a renewal fee and still owe the amount they borrowed, including the original fees.

The fees to borrow the money do not include late fees.

If you're not looking to pay higher fees to borrow before your next paycheck arrives, the Federal Trade Commission says you should consider the following:

Consider a small loan from your credit union or bank to pay off any larger expenses you may have. Shop around to find the best interest rate to fit your needs.

Contact your creditors to see if you can work out a debt repayment plan that works with your budget.

And make sure you are making a realistic budget for yourself, and avoid unnecessary purchases. They can add up throughout the month and cost you hundreds before you know it.

“Money: It’s Personal” is a series on KSAT’s News at 9 that breaks down personal finance topics. If you have a suggestion or question on they types of topics you'd like us to explain, click here.


About the Authors:

Ivan Herrera has worked as a journalist in San Antonio since 2016. His work for KSAT 12 and KSAT.com includes covering breaking news of the day, as well as producing Q&As and content for the "South Texas Pride" and "KSAT Money" series.