Payday loan companies are businesses that will "advance" you money on your paycheck. In other words, they will loan you money in advance of your actually receiving your paycheck from your employer…but there is a price. The technical banking term for this type of transaction is called a "short-term deferred deposit loan." It's a loan secured with your personal check that you make out to the company for the amount of the money they are loaning to you, sign and postdate (meaning that you date it for the date you are expected to receive your actual paycheck).

The offers can sound enticing, with fast approvals promised, minimal qualifications required (identification, proof of checking account & employment and bills in your name), and no credit checks. The only requirement for most payday loan companies is that you are at least 18 years old, have a job with a regular paycheck and a checking account to get the advance. Some companies may require a minimum monthly income.

Here's how it works:
You apply in person, online or by filling out some paperwork that the store gives you and faxing it to a company's 1-800 fax number. The store/company will review your information and determine how much they are willing to loan you against your next paycheck, typically between $100 - $500. You make a postdated check out to the payday loan company for the amount of the loan plus a fee. The lender agrees not to deposit the check until your next payday, or up to 14 days later. After the company approves you for the loan, they will deposit the loan amount into your checking account.

The loan is automatically due on your next payday, or within 14 days. But what happens 14 days later when the loan is due?