Living paycheck to paycheck can make it difficult when emergencies happen. How will you cover the unexpected costs and your regular bills? If you find yourself without enough money you may consider taking out a loan. While you have several options, the most common option is the payday loan.
Here’s everything you must know about payday loans online and how they work to help you decide if it’s right for you.
Payday Loan F.A.Q. – Top Questions
What is a Payday Loan (or Short-Term Cash Advance)?
A payday loan is a lump sum loan that gets you from one pay day to the next. You receive the money in one lump sum and repay it all at once on your next payday. Some people call it a payday advance because you receive the money you earned in advance of your payday.
Are Payday Loans Available for People with Bad Credit?
Online payday loans are a great alternative for people with bad credit. Payday loan lenders don’t rely on your credit score alone. Since a payday loan is a short-term loan from one payday to the next, they don’t have to focus on your credit score and payment history.
Instead, payday lenders focus on your income, paydays, and whether you have a checking account for them to automatically withdraw the payment on your next payday. So yes, you can really take online loans for bad (poor) credit history.
Are Online Payday Loans Safe and Legal in the USA?
Payday loans are legal in most states, but not all. Some states prohibit them including:
- Arizona
- Arkansas
- Connecticut
- District of Columbia
- Georgia
- Maryland
- Massachusetts
- New Jersey
- New Mexico
- New York
- North Carolina
- Pennsylvania
- Vermont
- West Virginia
All other states allow them, but each has different rules and maximum amount (infographic) you can borrow.
Can you get a Cash Advance Loan on the Same Day?
Every cash advance loan lender is different, but in general, you can get funds within a few hours. If not, most payday lenders fund the loan by the next business day. You must have a valid checking account available for them to wire the funds to receive the funds quickly.
What are the Requirements for the Borrower?
The requirements to qualify for a payday loan are much simpler than a traditional loan from your local bank. You must be at least 18 years old and meet these requirements.
- Have an active checking account
- Provide proof of adequate income
- Prove your Social Security number
- Have an active email address
- Be able to set up an automatic payment (direct withdrawal) for the payment
Every payday lender has different requirements, but these are the basic requirements. Always read the fine print to see what other requirements a lender may have.
Can Payday Lenders take Money from my Account?
Yes. When you sign up for a payday loan, you give the lender permission to withdraw the amount you owe from your account on your next payday (in most cases). You sign an ACH authorization giving the lender permission to do so.
If you don’t have the money in your account when they try to withdraw, you could get hit with fees from your bank and the lender.
If you can’t pay the full amount (the transaction doesn’t go through), the lender may break the amount owed into smaller chunks, withdrawing smaller amounts until you pay the loan back in full.
How does an Online Payday Loan Work in the US?
Applying for and receiving an online payday loan is simple. You can apply for the loan from the comfort of your own home. The application takes only a few minutes and requires information including:
- Name, phone number, address, and email address
- Driver’s license number
- Bank account information
- Employment information
- Income information
Once you apply, the lender instantly processes your application, and you’ll typically have an answer in seconds. If approved and it’s within wiring times, you may receive the funds within a few hours or as soon as the next day.
What Happens if I Don’t Repay my Payday Loan on Time?
If you don’t repay your payday loan, you’ll accrue interest and fees until you pay it off in full. If too much time passes (each lender is different), your account may be sent to collections. Most lenders wait 60 days before they send your loan to collections. If this happens, it will likely hurt your credit score and make it difficult to get future loans.
What is the Average APR Interest Rate on a Payday Loan?
Every loan charges a different interest rate, but on average borrowers pay as much as 400% for their payday loans. This comes out to $15 – $20 for every $100 you borrow. If you don’t pay your payday loan back on time, the interest rate climbs even higher.
Payday and Installment loans: What is the Difference?
Payday and installment loans have one similarity – they both lend you money. How they lend it and the repayment requirements, however, differ greatly, including:
- Installment loans require a credit check and more evaluation of your ability to repay
- Installment loans require monthly payments that include a portion of the principal you owe plus interest
- Installment loans have lower interest rates because they are based on your ability to repay unlike payday loans
- Installment loans are for a specific purpose, such as a mortgage to buy a house or a car loan to buy a car
Instant and No Credit Check Loans: Is it True or a Myth?
It seems too good to be true, but instant and no credit check loans do exist. Payday lenders can offer these programs because of the higher interest rates and fees they charge. Some lenders approve borrowers instantly and others may take a couple of days, but the entire process is much faster than a traditional bank loan process that could take weeks or even months to close.
Why do People Take Online Payday Loans (Reasons)?
People take online payday loans for many reasons, but here are the most common:
- Unexpected car repairs
- Unexpected medical bills
- To cover bills during a time of excessive spending
- Covering bank overdraft fees
- Catch up on past due bills that may have other consequences
- Debt consolidation
Can I Apply and get Money from the Comfort of my Home?
It’s easy to apply for a payday loan and receive the money without leaving your home. Most lenders provide the application online and if you can scan in any necessary documentation, the entire process can be completed online.
Once approved, most lenders wire or automatically deposit the funds in the checking account you provided. This is the same account lenders will take the payment from on your next payday too.
How are Direct Online Payday Lenders Regulated?
Each state has its own regulations regarding how they govern and monitor payday lenders. Check with your state’s requirements before choosing a payday lender to make sure you’re working with a legitimate lender.
How to Increase the Chances of Getting a Loan Until Payday?
Like any loan, you must prove you have a good reason for needing the funds and that you are capable of paying it back. Here are a few tricks to get approved for a payday loan.
- Have stable employment income
- Don’t have a recent payday loan (even if it’s paid off)
- Don’t take out payday loans too often
- Have a valid reason for needing the loan (hint: taking a vacation isn’t a good reason)
- Provide all documentation quickly
Final Thoughts
An online payday loan can be a great way to get you through unexpected times. Since you pay the loan in full the next payday, you don’t have to worry about adding another monthly debt to your budget or keeping track of the payments.
Make sure you understand the terms and are borrowing the money for a legitimate reason that can’t wait until your next payday. With the right lender, you’ll satisfy your financial needs and stay out of financial trouble.
