A payday loan, payday advance, or cash advance, is meant to be a short-term, unsecured loan.
This type of loan is based on a pre-set automatic withdrawal from your financial institution or a check held by the loan company for future deposit on a specific date. Borrowers either write a check to the lender or promise to pay back the amount borrowed, plus interest and any fees. Some companies will allow in-store payday loan customers to repay in cash at the store, in exchange for their post-dated check.
The amount is meant to be covered by your next paycheck from your employer, hence “payday” loans. The general loan term is two to four weeks.
Payday loans have high interest rates and are generally structured to be paid in one lump sum, rather than small installments over a period of time.
Loan amounts depend on minimum and maximum amounts allowed by your state, but vary between $100 to $1,000. A common maximum limit is $500. Your loan amount also depends on each lender’s policies and how much you are approved to borrow.
Loans typically have very high interest rates. We commonly see a $15 charge per each $100 borrowed. This is is a 400 percent annual percentage rate (APR).
Generally, you are charged $10 to $30 for every $100 borrowed. In some states, lenders are allowed to charge additional fees, like loan origination fees.
Laws regulating payday loans vary by state. Most states limit loan amounts, term lengths, interest charges, and other fees.
The following jurisdictions have prohibited payday loans: Arizona, Arkansas, District of Columbia, Georgia, New Mexico, North Carolina.
To see if your needs would be met by a payday loan, check out your state’s rules via the National Conference of State Legislatures website.
In general, payday loan applicants must be at least 18 years old and have a valid ID, an active checking account, verifiable proof of income, and a valid phone number. Sometimes, lenders will request to call your employer to verify your employment. Applicants with poor or bad credit can be accepted.
It depends on the lender. There are two general ways that a payday loan can affect your credit score.
First, does a lender do a “hard” credit check when you apply? If so, this can affect your credit score.
Second, does a lender report your repayment, or lack thereof, to the credit bureaus? If so, then this can either help to rebuild your credit or can make it worse if you aren’t able to make debt payments on time.
With most payday loan providers, you can be approved within minutes and have your money within one business day. Depending on the company and how easy it is to verify your eligibility, it can take longer.
Installment loans have high interest rates, but payday loans have higher rates.
Payday loans are meant to be repaid in one lump sum, but installment loans are to be paid back in pre-set installments, for the duration of the term.
They are both short-term options, but payday loans are due in a matter of weeks whereas installment loans are due in a matter of months.
Generally, installment loans are for larger amounts, whereas payday loans are small-dollar loans. Most states cap payday loans at $500-$1,000.
No. Some lenders operate storefronts and online services, but some offer only offer online payday loan services. It also depends on your area. Some loan companies offer different services in-store than online. Some operate stores in one state, but only act as an online lender in another state.
If you are in the military, payday loan interest rates for you and your dependents are limited by the law. The APR on payday loans cannot exceed 36 percent.
Consequences and options depend on your loan agreement, your state, and your lender.
You can count on late fees.
Sometimes, you are given the option to renew or roll over your loan. This is paying an extra fee to delay repaying your loan.
You can also ask your lender to see if an extended repayment plan is available. Depending on your state and the lending company, you may be able to use an extended repayment plan to pay back the loan in smaller pieces over an extended period with additional fees.
Payday loan debt is some of the harshes and hardest to pay off in the market. This is because it can grow exponentially if you don’t pay on time.
When choosing a payday lender to work with, consumers should consider their financial situation and credit history. Next, look at what the interest rate and fees will be, how soon you would be required to repay, and what your options would be if you can’t repay the loan on time. Consult payday loan ratings and reviews to compare policies and requirements.