Payday loans explained (Video)

NOTE: The CFPB has delayed the compliance date for the mandatory underwriting provisions in this rule to November 19, 2020, and has proposed to rescind those provisions.

When cash is tight, some people turn to payday and similar loans to make ends meet. For some people payday loans become debt traps and our new rule aims to end the cycle of debt.



Just like a taxi is meant to take you on a short trip, payday loans are meant to be short-term debts. These are small dollar loans that are usually due in full on your next payday, and carry an average annual percentage rate of over 300 percent.

Most consumers can't afford to pay back all of the money they owe by their next paycheck. Within a month, almost 70 percent of borrowers take out a second payday loan. One in five borrowers ends up taking out at least 10 or more loans, one after the other. With each new loan the consumer pays more fees and interest on the same debt. What was supposed to be a short-term loan becomes a long-term debt trap. That’s like getting into a taxi for a ride across town, but paying for a cross-country road trip.

The Consumer Financial Protection Bureau is working to end the payday debt trap. Our rules require lenders to determine whether borrowers can afford to pay back their loans. Borrowers can avoid the debt trap when they repay, not repeat, their loans. To learn more about our work to end payday debt traps, visit

More Information from CFPB:
Last Review and Update: May 11, 2023
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