A payday loan, also sometimes known as a paycheck or cash advance, is quite simply a loan to cover you until your next payday. Typically the amounts lent are up to £1,000 though more usually around the £750 mark. The amount borrowed is due for repayment in full upon your next payday so is quite literally a short term borrowing amount to tide you over.
Legislation regarding payday loans varies greatly between different countries, and in the USA, between states. In the UK the interest applied to the loans is typically high, varying from 25% to 30%. In terms of APR this can be a figure as great as 2.225% per annum. In the UK there is also no law against rolling the loan over which coupled with the high rate of interest can lead to the total loan eligible for repayment in time becoming vast.
The number of people in the UK taking out payday loans has increased dramatically from 1.2 million in 2006 to 4.1 million in 2010. The credit crunch and economic crisis has been cited as to blame as people struggle to make ends meet.