What is a defining feature of a payday loan?

A payday loan is characterized primarily by its short-term nature and high-interest rates, which are typically due on the borrower's next payday. This type of loan is designed to provide immediate cash flow to individuals who may be facing unexpected expenses or financial emergencies. Since these loans are usually small amounts, they are intended to be repaid quickly, often within a few weeks. The high interest associated with payday loans is a critical feature, as it reflects the lender's compensation for the risk of lending to borrowers who are often in a precarious financial situation.

Other options do not accurately describe payday loans; for instance, collateral is usually not required, as payday loans are often unsecured. Furthermore, they are not structured to be repaid over many years; the repayment period is typically very short. Lastly, payday loans are specifically targeted at consumers rather than businesses, emphasizing their role in personal finance.