How Payday Loans Work

Payday loans are used by those who need cash between their pay periods. Perhaps they’ve been hit by an unexpected doctor bill or auto repair or have other needs for the cash.

The Payday Loan Concept

Payday loans are loans for a short term of usually a week or two. When they first began, payday loans were based on the lender holding the borrower’s personal check. The check included the amount borrowed plus the finance charges.

The lenders deposited the check when the term of the loan over—usually the next payday.

In the age of the internet and instant electronic information transfer, on line payday loans have gotten more popular.

Online, the borrower gives checking account access to the lender to process and repay payday loans. The lender then will withdraw the loan amount including interest when the term of the loan is over.

Or, in the case of a rollover (not permitted in all states), the lender will just withdraw the interest and rollover the principal.

Terms of a Payday Loan

The amount of money that can be borrowed ranges from $100 to $1000. With the average loan being about two weeks, they typically cost in the neighborhood of about a 400 percent APR. That means that the borrower pays $15 to $30 to borrow $100.

Payday Loan Requirements

Neither credit checks nor proof of income are required to get a payday loan so the requirements are minimal:

• You must have a valid checking account (some lenders require the checking account to have been in use for three months)
• You must have a job or be receiving regular benefits like social security or a  pension
• You must have a steady income (usually $1,000 per month)
• You have to be at least 18 years old
• You must be a United States citizen

The Payday Loan Application Process

The loan application will ask for the following information:

Personal Information including:

• Name and address information including email
• Phone numbers
• Date of birth
• Social security number
• Driver’s license state and number

You income situation including:

• Your income source (job or benefits)
• The name of your employer or benefit source
• Your work phone
• How you receive your money (direct deposit or paper check)
• The date of your last payday
• The date of your next payday
• How often you get paid
• The amount of your average paycheck
• The total months at your job or total months you’ve been receiving benefits

Your bank account information:

• Account type (checking or savings)
• A valid account number
• The account routing number
• Bank name and how long you’ve been at that bank
• The amount you’re requesting for the payday loan

Where to Get a Payday Loan

You can obtain a payday loan by accessing one of the many firms that provide them that are proliferating on the internet and as brick and mortar institutions.