Payday loans are short term, high interest loans to cover unexpected expenses between paychecks. Unlike an installment loan which is paid over time with scheduled payments, a payday loan is paid in full on your next payday. The application process for payday loans is quick and easy so it’s an option for those who need cash fast to handle financial emergencies.

Features

• Short Term Loan. Payday loans are short term loans, due in 2 to 4 weeks.

• Loan Amount. Small dollar loans, $100 to $1,000.

• Repayment Terms. Repayment is one lump sum payment on the borrower’s next payday.

• Interest Rates. High interest rates and fees, much higher than personal loans from credit union or bank.

Pros and Cons

Pros

1. Quick Cash. Payday loans get you cash fast, often within 24 hours, to cover unexpected expenses.

2. Easy Application. The application process is simple and requires minimal documentation so it’s easy to get a loan.

3. No Credit Check. Payday loans don’t require a credit check so it’s an option for those with bad or no credit.

Cons

1. High Interest Rates. Payday loans have extremely high interest rates which can lead to debt if not paid on time.

2. Short Repayment Term. Unlike an installment loan, payday loans are due in full on your next payday which can be difficult for some borrowers.

3. Debt Cycle. The ease of access and short repayment term can trap borrowers in a cycle of taking out new loans to pay off old ones and more financial stress.

How to Apply for a Payday Loan?

1. Choose A Payday Lender. Select a reputable payday lender, online or in-store, and make sure they are licensed in your state and follow federal regulations.

2. Prepare Required Documents. Gather necessary documents such as pay stub, social security number, bank account information and proof of income.

3. Fill Out The Application. Fill out the payday loan application form with personal info, employment info and loan amount. Submit online or in person.

4. Review The Payday Loan Agreement. Review the payday loan agreement carefully, interest rates, fees, repayment terms and due date.

5. Get Loan Proceeds. Once approved, get the loan proceeds deposited into your bank account or prepaid card account, usually same business day.

Requirements

According to the U.S. government’s Consumer Financial Protection Bureau (CFPB), to get a loan most payday lenders require:

1. Age. Applicants must be at least the age of majority, which is 18 in most states, some states require 19 or 21 years old.

2. Active Checking Account. A valid and active bank account for the deposit of loan proceeds and for the lender to withdraw repayments.

3. Proof Of Income. Borrowers need to show proof of regular income, such as pay stubs, to show they can repay the loan.

4. Valid ID. Borrowers must present valid ID, which is usually social security number, to verify their identity.

How To Get The Money

1. Direct Deposit. The most common way is direct deposit into your bank account. Once your payday loan application is approved, the payday lender will deposit the loan proceeds into your active checking account, usually same business day.

2. Prepaid Debit Card. Some payday lenders offer to load the borrowed amount onto a prepaid card account. Good for those who don’t want to use their bank account.

3. Cash. In some cases, especially with in-store payday lenders, you can get the borrowed amount in cash. But this is less common than direct deposit or prepaid card.

4. Check. A few payday lenders may give you a check for the loan amount which you can then cash or deposit into your bank account.

Payday Loan Rates

Payday loan rates usually involve fees of $10 to $30 per $100 borrowed, depending on state laws and borrowing limits. A typical fee is $15 per $100 borrowed which is an APR of around 400% for a 2 week loan. For example, if you borrow $300 you would need to repay around $345 by next payday. These rates are much higher than other types of loans like personal loans or secured personal loans.

Payday lending is allowed in 37 states, 11 states including Connecticut, Maryland and New York have strict regulations or interest rate caps that limit or prohibit payday lending. Some states like Arkansas and North Carolina have repealed their payday lending laws and others like the District of Columbia have banned it altogether.

18 states and the District of Columbia have usury rate caps, usually at 36% APR, to curb high cost payday lending. States like Nebraska, Hawaii, Illinois and New Mexico have recently enacted such caps, which is a growing trend to regulate payday loan rates.

The highest payday loan rates are in states like Texas (662%), Missouri (652%) and Delaware (639%). On the other end are states like Oregon (140%), Maine (228%) and Iowa (247%). Some states like Washington and Virginia have additional regulations to limit the number of payday loans or extend the repayment term to reduce debt traps.

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