Before You Sign a Payday Loan Agreement: A Checklist

The loan agreement, not the advertisement, sets the rules you will live with. Work through this checklist before you sign anything.

This guide is general information for borrowers in the U.S., not financial or legal advice. Lending laws differ by state and change over time; check with your state's financial regulator or a nonprofit credit counselor about your situation.

Key points

1. A typical two-week payday loan with a $15 fee per $100 borrowed equals an APR of almost 400%, so convert every fee into dollars before signing.
2. The specific due date and the repayment method, usually a post-dated check or automatic bank withdrawal, must be written in the agreement.
3. Federal law requires lenders to disclose borrowing costs, interest rates and fees in a standard written format before you are obligated to repay.
4. Verify the lender's license through your state regulator or NMLS Consumer Access, since unlicensed lenders often charge illegal rates.
5. Rollovers, late fees and extended payment plans should all appear in writing; if a term is verbal only, do not sign.

A payday loan advertisement tells you how fast the money arrives. The contract tells you what the loan will actually take from you: the fee in dollars, the exact due date, and what happens if you cannot pay. Signing is the last moment you can read those terms before they bind you, so work through this checklist first.

The Total Cost in Dollars, Not Just a Flat Fee

Payday loan fees are usually quoted per $100 borrowed, which hides how expensive the loan is. Convert the quote before you sign:

• The dollar fee for your loan amount. Many state laws cap fees at $10 to $30 for every $100 borrowed, so a $400 loan at $15 per $100 costs $60 for two weeks.
• The APR. A typical two-week loan with a $15 per $100 fee equals an APR of almost 400 percent. Credit card APRs, by comparison, generally range from about 12 to 30 percent.
• Every other charge in writing. Ask what the lender charges for late payments and for nonsufficient funds, the fee that can appear when a withdrawal bounces.
• The full repayment amount. Know the exact total, fee included, that will leave your account on the due date.

For the full cost math, see how payday loans work and what they really cost.

The Due Date and How the Lender Gets Paid

This is the section that decides whether one loan turns into a chain:

• The exact due date. Payday loans are typically due in two to four weeks, often on your next payday or when other income arrives. The specific date is set in the agreement, so confirm the calendar date, not just “next payday.”
• The repayment method. You will usually write a post-dated check for the full balance or authorize the lender to debit your bank, credit union, or prepaid card account. Know which one applies to you.
• What happens if the money is not there. The lender can cash the check or withdraw the funds electronically, and your bank may add its own fees.
• How to cancel electronic access. If the debit would overdraw your account, you can act before it happens; see how to stop a payday lender from taking money from your bank account.

Renewal, Late Fees and Extended Payment Terms

Some state laws permit lenders to “roll over” or renew a loan when it comes due, so you pay only the fees and the balance moves to a new due date. Each renewal adds a new fee, which is how a two-week loan becomes a months-long expense.

• Ask whether renewals are permitted and how many your state allows; rules vary, so check with your state regulator or attorney general.
• Get the fee for each renewal in writing.
• Ask whether the lender offers an extended payment plan if you cannot pay on time, and what it costs.
• Note the late fee and when it applies.

State rules on rollovers and rate caps differ widely; our guide to payday loan laws by state covers the differences.

Disclosures and Licensing to Verify

Federal law requires lenders to disclose borrowing costs, interest rates, and fees in writing, in standard terms, before you are obligated to repay. The standard format exists so you can compare loans. Check the agreement for:

• The cost of the loan in dollars.
• The annual percentage rate.
• The payment schedule.

If those figures are missing or the lender brushes off questions about them, walk away. Then confirm who you are actually dealing with:

• The lender’s legal name, street address, phone number, and email, which should be easy to find in case a problem comes up later.
• Its license. Contact your state financial regulator or attorney general, or use NMLS Consumer Access, the database many states use for payday lender licenses.
• Enforcement history. Many state regulators let you search enforcement actions by company name.

Be careful

Never sign an agreement with blank spaces left in the fee, due date, or repayment sections, and never rely on verbal promises about fees or renewal terms. If the lender will not put a term in writing, do not sign.

Red Flags and Cheaper Options

Stop and reconsider if you see any of these:

• No written cost figures, or refusal to state the total repayment amount.
• Pressure to sign immediately.
• A site that promises to find you the cheapest loan. Many websites advertising payday loans are lead generators, not lenders. They collect your information, including your Social Security and checking account numbers, and send it to a network of lenders.
• Contact information you cannot find or verify.

Also know what cannot happen to you: you cannot be arrested for defaulting on a payday loan, and a lender can garnish your wages only with a court order.

Almost any alternative costs less than a loan at a 400 percent APR. Before you sign, weigh:

• A payment plan with the creditor. Call the company you owe before the bill is late. Creditors are often willing to negotiate lower payments, and you can ask about extra fees before agreeing.
• A credit card or a small loan from a bank or credit union. These typically cost far less than a payday loan, especially if you can pay a card balance in full each month.
• Free counseling. A non-profit housing counseling agency approved by HUD can help you work through bills at no cost.
• Local assistance. State and local programs for rent, utilities, and food can shrink the amount you need to borrow.

If shortfalls keep recurring, a small cushion in savings beats any loan; see the real cost of a $500 emergency without savings.

Related guides

• How Payday Loans Work, and What They Really Cost: The full cost math, including how rollover fees compound.
• Payday Loan Laws by State: Where the loans are banned, capped, or restricted.
• How to Stop a Payday Lender From Taking Money From Your Bank Account: Steps to revoke electronic access before a withdrawal empties your account.

Common questions

What should the payday loan agreement tell me about cost?

It should state the dollar amount you borrow, the exact fee or finance charge, and the APR, which is the cost of credit expressed as a yearly rate. Federal disclosure rules require lenders to present credit terms in a standard format so loans can be compared.

How do I check if a payday lender is licensed in my state?

Contact your state financial regulator or attorney general, or use NMLS Consumer Access, the database many states use for payday lender licenses. A licensed lender is far easier to hold accountable if something goes wrong.

Can I be arrested if I cannot repay a payday loan?

No. The Consumer Financial Protection Bureau states you cannot be arrested for defaulting on a payday loan. A lender can garnish your wages only with a court order.

What if I signed and now cannot afford the payment?

Read your agreement for renewal or extended payment terms and contact the lender before the due date. You can also revoke authorization for automatic withdrawals from your bank account by notifying your bank.