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Quick Answers...Finance/Credit


How do payday loans work?


Payday loans give consumers cash until their next payday. A borrower writes a personal check to a payday lender, who holds the check for a period of 14 to 31 days. The check is more than the amount of cash that the borrower gets. At the end of the specified time period, the lender cashes the borrower’s check. The borrower can return with cash to reclaim the check or renew the loan for additional fees. Missouri allows up to six renewals.


The average annual percentage rate of interest on a Missouri payday loan was 422 percent in 2006, with 391 percent being the most frequently occurring ($100 for two weeks with a $15 fee). In 2004, rates were documented as high as 1,278 percent.


Some borrowers get caught in a cycle of debt that can have devastating financial consequences. In 2006, there were 2.87 million payday loans, averaging $274.72 – a total of about $788.4 million in loans.


There are four times more McDonald's restaurants in Missouri than there are payday loan stores. In 2006, Missouri had 1,262 active payday loan stores versus 300 McDonald's restaurants.



McDonald’s Corporation (personal e-mail communication, November 22, 2005) via
McDonald’s Corporation (personal phone call communication, March 9, 2007)
Missouri Division of Finance, Survey of Payday Lenders, Report to the General Assembly, January 2007, downloaded 5-8-07 from Documents/2007PaydayLenderSurvey.pdf
Missouri Division of Finance, Survey of Payday Lenders, Report to the General Assembly, January 2005, downloaded 5-8-07 from 


Written by Brenda Procter, M.S. Associate State Extension Specialist & Instructor Personal Financial Planning Department, College of Human Environmental Sciences, University of Missouri-Columbia, 162 Stanley Hall, Columbia, MO 65211-7700, Phone: 573-882-3820, Fax: 573-884-5768, E-mail:





Last update: Monday, February 23, 2009


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