Payday loans are loans that let you borrow funds for a short time period — typically at a high interest rate. This type of loan gets its name from the fact that most payday loan definitions specify that you have to pay back the loan out of your next paycheck. Technically, the loan terms tend to be two to four weeks (or enough time to ensure your paycheck hits your bank account).
Find out more about payday loans below, including how they work, whether they’re legal and what other options you might have for getting fast access to cash when you need it.
How Do Payday Loans Work?
You can get payday loans online or off. When you apply for in-person payday loans, you do so at a payday loan office. Online payday loans work the same way in-person loans do, but you complete the application process online.
In either case, payday loan lenders don’t typically require a credit check. Instead, you have to prove that you’re employed and have a specific amount of income. Payday loan lenders typically want to see a few of your latest check stubs so they know how much you get paid on a regular basis.
When you take out a payday loan, you sign an agreement with the lender. They give you the cash that day or by the next day — either in the form of a check or a direct deposit. You agree to repay the loan directly from your checking account at the due date. Typical terms for a payday loan range from two to four weeks, and the payment comes out of your account automatically.
How Much Can You Borrow With a Payday Loan?
How much you can borrow with a payday loan depends on factors including your state laws and how much you make on each paycheck. In general, a payday lender won’t approve a loan amount that’s for more than your paycheck or even all of it. Your paycheck is, after all, what is used to pay back the loan in a few weeks.
Thirty-seven states allow payday lending, but the laws governing these loans vary by state. Each state that allows payday loans has a set maximum loan amount that’s allowed by law. State maximums for payday loans where Wise Loan operates are:
- Delaware: $1,000
- Idaho: $1,000
- Louisiana: $350
- Mississippi: $500
- Missouri: $500
- Nevada: Not more than 25% of the monthly income
- South Carolina: $550
- Texas: $100 or $200, depending on the type of loan
Payday loans are not offered in Utah and Wisconsin. For a complete explanation on payday loan laws in Utah and Wisconsin, please visit the National Conference of State Legislatures.
In most of these cases, the maximum loan amount is inclusive of any fees. The amount you get in cash may be less than the maximum. The details of the payday loan laws may also require lenders to keep loans under a certain percentage of your income, which could lower these caps in some cases.
(Source: National Conference of State Legislatures)
How Do You Get a Payday Loan?
To get a payday loan, you must apply for one. While the details might be somewhat different with each lender, here’s a common series of steps you would take to get in-person or online payday loans:
- Search for payday lenders. Start by searching in-store/in-person and online payday loan providers. It’s important to find a responsible lender that’s allowed to provide loans in your state.
- Read up on the requirements for each loan. Do some research to understand what the requirements are for a loan. Applying for loans you probably won’t qualify for doesn’t do you any good — it can increase the time it takes for you to get the money you may need, and in cases where lenders are checking credit, it can even hurt your credit score. Payday loan lenders don’t usually require a credit check, but they may require a checking or savings account and certain documents.
- Gather your documents. Make a list of all the documents you might need to successfully apply for a payday loan and gather them. Common requirements for payday loans include a state-issued ID or another legal form of ID, a qualified checking or savings account that can receive the loan funds and be used to pay the loan balance at the end of the term, documents proving your income (such as paycheck stubs) and an address in a state the lender works in. Many lenders also require contact information, including an email address and a phone number.
- Apply for the payday loan. Complete the loan application online or in person.
- Get your cash. Once you’re approved, you can usually get your cash within one business day. Some lenders even offer options for same-day or instant funding of approved loans.
Dangers of Payday Loans
The fact that payday loans have no credit check requirements and can be relatively easy to get cause many people to turn to them when they have an urgent cash need. However, payday loans are not without disadvantages, and some of them can prove dangerous to the stability of your financial life.
Payday Loans Have High Interest Rates
Since payday loan lenders don’t check your credit and may fund loans for anyone that can demonstrate the right income, they can be risky for the lender. To make up for that risk, payday loan lenders often charge very high interest rates, making this an expensive form of debt.
To add to the issue of high interest rates, payday loans are typically due within the month. That means the interest is charged in the form of a finance fee. The amount of this flat fee depends on how much you borrow. According to the Consumer Financial Protection Bureau, it’s common for payday loan lenders to charge $15 to $30 for every $100 borrowed for a two-week loan.
Say you borrow $200. The fees for that could be as much as $60 total, which means you would have to pay back $260 within two weeks.
Payday Loans Have Short Repayment Terms
The short repayment terms combined with the high fees can create a sort of payday loan trap that may be difficult to dig out of. Consider the hypothetical example below to better understand the potential danger of payday loans:
- Someone brings home $700 every two weeks.
- Their car breaks and they need $400 to fix it. They need the money before their next payday, because they can’t get to work without their car.
- The person borrows $400 via a payday loan lender and agrees to a $60 fee and payment terms of two weeks.
- Out of their next $700 paycheck, the person owes $460. That leaves them with $240 of that paycheck to live on.
But what if another issue occurs or the person has to pay rent with that next paycheck? They may realize they can’t pay off the payday loan. In some cases, payday lenders allow loans to be rolled over — for an additional fee. In this hypothetical case, imagine that the loan can be rolled over for an additional $50. Now the person owes $510 out of their $700 paycheck, leaving them even less to live on for two weeks.
How Payday Loans Can Affect Your Credit Score
In most cases, payday loan lenders don’t report timely payments to the credit bureaus. That means paying your loan back as agreed doesn’t have any positive impact on your payment history or credit. However, if you can’t pay your loan back, the lender will likely send you to collections. The open collections account is reported on your credit report and negatively impacts your score.
Alternatives to Payday Loans
Payday loans aren’t always the right answer to an urgent need for cash. Here are some other options that you might consider before signing on the dotted line for a short-term payday loan:
- Use a credit card or line of credit. If you have a credit card or other line of credit with available credit on it, consider using it to cover the immediate expenses you’re facing. While credit cards may come with high interest, the rates are typically lower than what you’ll face with a payday loan. You also have some more flexibility in how you pay the debt back.
- Borrow money from a friend or family member. If you truly only need a bit of cash to make ends meet or cover an urgent expense until payday, consider asking someone you trust to lend you the funds. They may be willing to do so if you really can pay them back right away, and you won’t be out the high fees associated with a payday loan.
- Get a personal installment loan. You can find lenders that offer personal installment loans for $500 or more that don’t require you to have great credit. Installment loans can be more manageable to pay back.
Payday Loans vs. Installment Loans
How are installment loans more manageable than payday loans? When you take out a small personal loan, you usually have months or even a few years to pay it back — as compared to the weeks you get with a traditional payday loan. That means the amount you pay back is broken into numerous smaller amounts, so you’re not taking up a good part of one of your paychecks to cover it.
For example, you might borrow $500 and pay that back with payments of around $50 each. It’s much easier to find $50 out of each paycheck than to find $500 out of your next paycheck when you’re already strapped for cash.
Installment loans from Wise Loan are processed quickly, carry no hidden fees, and you can qualify for one with bad credit. You may not even need the same income documents a payday loan lender would require, making our application even easier. Plus, we report your timely payments to two of the three credit bureaus, helping you build your credit as you pay back your loan.
Frequently Asked Questions About Payday Loans
Are Payday Loans Legal?
The regulations for payday loans occur at the state level. Each state has different regulations, with some states regulating these types of loans more than others. Some states do prohibit payday loans, including Arizona, Arkansas, District of Columbia, Georgia, New Mexico and North Carolina.
Are Payday Loans Fixed or Variable?
Usually, payday loans are paid back in a single payment and the interest is charged as a lump sum fee. That equates to fixed-rate interest. Payday lenders may use terms like interest, finance charges, flat-rate interest or flat fee to refer to these charges.
Are Payday Loans Secured or Unsecured?
Secured loans are those that are tied to collateral. If you don’t pay the loan, the lender takes the collateral and sells it to make up for its losses. A common example of this type of loan is a car loan. Payday loans are unsecured as they aren’t tied to any collateral. However, lenders do typically require you to sign an agreement that the payment can be taken directly out of your checking account.
Can You Get a Payday Loan With Bad Credit?
Yes, most payday loan lenders don’t require a credit check. However, if you have bad or poor credit, payday loans aren’t your only option. You have other options, including installment loans from Wise Loan.
How Many Payday Loans Can You Have?
The number of payday loans you can have at a time depends on factors such as your income, how much you initially borrowed, the policies of your lender and the laws of your state.
Frequently Asked Questions
What are Payday loans most commonly used for?
A payday loan is a short-term loan that can be used to cover financial emergencies such as bills or other costs. The lender gives the borrower a cash advance, at very high interest rates. This type of loan is commonly called a “payday loan”, as the borrower typically uses it to pay their bills until they get paid.
Although payday loans are not often considered an option of last resort, many people use them when they need cash quickly and don’t want to wait in long lines at the banks.
Cash advances may seem attractive to those who feel trapped by mounting debt, cannot afford credit card payments, or just do not have time to go to a bank to obtain a traditional loan.
Consumers believe that payday loans are less risky than borrowing a larger loan. If the borrower fails to make several payments, it could lead to repossession of their property and missed mortgage payments. Most states have higher loan fees.
You must repay your payday loan within 14 days if you take out a payday advance. Keep in mind that borrowing money means you have to agree to additional fees for each day. These fees depend on how much money is borrowed, but generally lenders charge $15/100. Online information is available about payday loans.
Can You Get a Payday Loan with Bad Credit?
Bad credit may prevent you from being approved for a payday advance, but friends and family members might be able to lend you money if there is a good connection.
Also, you should consider other options like selling products or buying items on eBay. These are just two ways that people with bad credit can repay loans.
If all else fails you can apply online for a personal loan at www.moneytree.com. This type loan is available with little or no collateral, but higher interest rates.
How can I get instant money?
There are two ways to make quick money, but both can be risky. Selling items online is the first option. These sites can help you make quick cash by selling products. This comes with many risks. It is possible to lose large sums of money if your attention is not paid to all details. These opportunities can also be very lucrative if the owner doesn’t know how to properly manage them. A third risk is that the site where the product was sold goes bankrupt.
The second option would be to ask for help from someone. This involves asking your family and friends to help. Be careful. People will probably refuse to give you money if you ask them for it without giving anything back. If you ask for money in a time when you aren’t having enough money, you won’t be able to earn any additional money. If you find yourself in trouble once again, you’ll need to ask someone for money.
So, while it’s possible to get money fast through these methods, it seems like a risky way to do things.
What amount of a loan am I eligible for with no credit check?
Without at least $1000 worth liquid assets and collateral, you will not be eligible for any type of loan. This will make it more difficult to get a loan.
If you have savings or investments you can use to collateralize your loan, you are fine.
If your employer has given you a plan for 401k, you can use it as collateral.
Speedy Cash Can You Check Your Credit?
Many lenders use credit checks to protect their customers from fraud and help them find people who are not eligible for financing. But will they increase your chances to get approved for a mortgage?
Yes, that’s the short answer. Evidence suggests that consumer reports have helped millions of Americans secure home loans by helping them avoid predatory lending practices.
However, consumers need to be aware of the fact that these reports may cost money and could deter borrowers applying for financial services.
Your credit scores can be affected by many other factors than a lender looking at your report. You could see a drop in your credit score if you default on payments or miss several payments. This makes sense since missed payments reflect lousy credit history.
Not all lenders will check your credit before approving you to borrow money. Some will review your credit only once or twice while you apply for a loan, while others may not.
Before you sign up for any type a loan, be sure to understand the information being provided about you. Do you want anyone to have your financial details?
Statistics
- By comparison, APRs on credit cards can range from about 12 percent to about 30 percent. (consumerfinance.gov)
- Unlike other personal loans, payday loans often feature interest rates ranging from 391% to 600%. (timesunion.com)
- For example, CashUSA’s payday loan APRs range from 5.99% to 35.99%, placing them well within the averages for most major lines of credit, including credit cards and bank loans. (timesunion.com)
- Cons Up to 8% origination fee (abcactionnews.com)
- In California, for example, a payday lender can charge a 14-day APR of 460% for a $100 loan.6 Finance charges on these loans also are a significant factor to consider, as the average fee is $15 per $100 loan.1 (investopedia.com)
External Links
consumerfinance.gov
sfgate.com
How To
Online payday loans at the best rates
Short-term cash advances with very low rates are the best payday loans online. These loans are available immediately and don’t require credit checks. They can also allow you up to $1500 to be borrowed in one day. It is typically paid back within 15 working days after approval. Only requirements are regular income and checking account. There are several ways to pay your loan off faster. Before applying for a loan you should always verify the interest rate. Certain companies have lower interest rates than other. If you want to get approved quickly, apply early in the morning. They are usually available from 8 AM to 8 PM EST.
These services may be sought after for many reasons. One person may be in need of emergency funds due to losing his job or unexpected expenses. A person might need cash to pay their rent or fix their car. Many people apply for a no-faxing loan, so they do not have to wait for the paper documents to arrive. This service is available to those who can not afford bank fees and need quick cash.
These loans are easy to get. Just fill out the form and give your basic personal information, such as name, date of birth, contact number etc. Once your application is submitted, you’ll get an instant decision on the amount of money that you can borrow. This process usually takes around 5 minutes. The email confirmation will contain instructions on how to repay the loan.
There are two options available to you if your goal is to borrow money for an extended period of time. The first option is an installment loan. This requires monthly payments. An open-end loan is another option. Both require collateral. Collateral means something owned by someone else that’s used as security against the loan. Collateral could be, for example, your home. Along with the collateral, you’ll need to sign a promissory notes. This document contains the repayment plan and the amount of money that you will owe. In other words, you borrow money for X months and repay the principal plus the interest.
It is important to compare APR (Annual percentage Rate) rates of all lenders before you make a decision. Many lenders charge variable APRs, which can range from 1% to 30%. The APR is affected by factors such as the amount of the loan, its duration, borrower’s credit score, geographical location, and other factors. You can compare loans of similar lengths and amounts to determine the lowest APR.
To get the best deal, shop around. Shop both online and offline until finding the best lender suits your needs. Compare the advantages and features of each loan product to find one that is right for you. Do not forget to request a copy. You should carefully read the contract before you sign anything.
Before taking out a loan, ensure you understand what you’re getting into. Know the details and how much you will be responsible. Avoid falling prey to fraud and scams. Ask for recommendations from family members and friends. Get advice from professionals before you decide to take out a loan.
