This paper analyzes payday lending. Payday lenders generally make uncollateralized loans of $100 to $500 that borrowers agree to repay within about two weeks. Annualized interest rates on these loans are typically 400% or more. This paper explains the key features of payday loan contracts, reviews data profiling payday loan customers, and examines why people use these high-cost loans. The paper also provides data on the frequency with which customers use payday loans, addressing the charge that many customers become entrapped in a revolving series of short-term debts. 
Key words: Payday loan, Debt problems, Consumer finance 

1. John P. Caskey, Professor of Economics, Swarthmore College, 500 College Ave, Swarthmore, PA, 19081. Phone: 610-328-8128 Fax: 610-328-7352. E-mail: jcaskey1@swarthmore.edu

Many people helped me to understand better the payday loan industry and I am grateful to them all. Among those who made special contributions are David Cowles, Jean Ann Fox, Bob Snarr, Billy Webster, and staff members of the Indiana and Wisconsin Departments of Financial Institutions. In naming them, I do not suggest that they necessarily agree with the ideas expressed in the paper or its tone. I am solely responsible for any errors or misinterpretations.