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All you need to know before getting a payday loan online

Imagine you’re in a tight fix, say, your boiler unexpectedly spoiled, and the repair had you wiped out. You’ve already maxed your credit card for the month. No savings to dip your hands into or an emergency fund to fall back on. Your rent is due in five days while your paycheck doesn’t get paid for 12 more days. You need cash – fast.

One option you can take to raise the money for your rent is to take out a payday loan.

  • A payday loan is a short term, unsecured loan you can take out with the expectation to repay with your next paycheck.
  • You can use Payday loan online services to get fast cash to handle emergencies and unexpected expenses.
  • Use short term loan comparison websites like to discover deals from lenders.

* Note that the payday loan is fully legal in only 27 states, and 9 additional states allowing short term lending with restrictions. Please check if it is legal in your state on the Consumer Financial Protection Bureau (CPFB) website.

What is a payday loan?

A payday loan is essentially a short term, unsecured loan you take out against your next paycheck.

Think of it as a cash advancement which you pay back once your paycheck comes in. As a short-term loan, you repay the debt within a couple of weeks, usually not more than four weeks.

The loan amount is typically small, usually not more than $500 depending on the lender, and is based on your salary after tax. A payday loan is intended to provide emergency cash to tide you till the next paycheck drops.

However, the annualized interest rates on these types of loans are often high. You’ll find some lenders charge up to 400 per cent of the initial loan amount.

How does a payday loan work?

The payday loan application is simple, fast, and straightforward. You don’t need to sign a ton of paperwork, nor your creditworthiness scrutinized before your application is approved. An application does not obligate you to take a loan.

Here are the typical steps to get a payday loan:

Step 1: Go to a payday loan lender’s website to complete their payday loan online application.

Step 2: Fill in personal information, such as your name, valid contacts and employment information.

Step 3: Wait for the payday loan decision. Usually, this doesn’t require more than an hour.

Step 4: Obtain your loan directly into your verified bank account once your loan application is approved.

As you can see, the loan application process is simple. Which means you don’t have to worry about a long, tedious process to get your loan approved.

How is payday loan different from other loans?

First, the product, a payday loan is offered by payday lenders, financial companies that advance cash to customers without asking for collaterals.

Second, you can take out a payday loan regardless of your credit card score. Whether you have bad credit ratings or no credit ratings at all payday lenders can still advance you some cash.

The loan amount is usually small compared to other types of loans. You can request a cash advance for as little as $50. Though, the maximum amount is capped at $500 for most lenders. Interests on Payday loans are higher than for most other types of credits. Hence, the faster you pay off the loan, the less you will have to pay back. The creditor will make sure you repay the loan by requiring you to make a post-dated check or to provide authorization to electronically debit the funds from your bank account.

That said, what’s the eligibility requirement for a Payday loan?

Eligibility for a cash advance is usually set by the lender; though in the US they are regulated by the CFPB. Therefore, you may want to check each lender’s requirements to be sure you qualify before applying.

Note that these criteria are set by the lenders to ensure you’re able to repay the loan. And, also as a form of responsible lending best practices put in place to protect you from ruining yourself financially.

These requirements are not set to discriminate or exclude you from getting the loan, but to protect those individuals who cannot afford to pay back the loan and are at risk of financial difficulties.

Here are some of the general requirements you must fulfill to qualify for a Payday loan:

  • Must be 18 and above – Lenders expect you to be at least 18. This way, they are sure you’re fully informed and able to take responsibility for your financial position.
    But, regardless of your age, whether 18 or 50, you can apply for and get approved for a quick cash advance.
  • Must have a regular source of income – You must have some guarantees that you can repay the loan. A verification of income is usually sufficient to pass this requirement.
  • US citizen/permanent resident only – lenders need to verify your address and identity. You also have to be a resident of a state where payday loan is legal. You also have to have a valid ID.
  • Active US bank account – you must have an active bank, credit union or prepaid card account.
  • Valid phone number and email address – During the application process, you’ll be asked to provide an active mobile number and email. This is needed to be able to inform you when your application is approved.
  • Social Security Number (SSN) and Taxpayer Identification Number (TIN) – Some lenders can also require you to provide your SSN and/or your TIN. This is also to secure that you will be able to repay the loan to the lenders and to verify your identity.

The contacts are used to verify your information; plus, to keep in touch with you throughout your loan term.

If you meet all the requirements above, you can go ahead to apply for a Payday loan.

It is essential to keep in mind that satisfying all requirements doesn’t necessarily mean you’d get approved for the loan. It merely means your application can now be considered. For instance, some online lenders require additional verification. The process involves checking your credit file and conducting an affordability assessment to be sure you can afford to repay the loan when approved.

Most customers, after getting approved for a Payday loan, soon find out they still need to apply for additional credits. Now, the question is:

Is it possible to apply for another Payday loan after getting approved for one?

This depends on the individual lender, as well as which state you live in. Therefore, it might be good to check the eligibilities on the individual lender websites.

Another important thing you need to know when applying for a Payday loan is how much it costs in money terms.

How much does it cost to take a Payday loan?

Payday loans in matter of fact are expensive. Even though, in the US, some jurisdictions limit the annual percentage rate (APR) up to between 360-400%.

According to the CFPB, a lender must not require a fee more than $10 to $30 for every $100 borrowed.

So, if you’re taking out a loan of $300, you will not have to pay more than $100 in fees.

If you want to extend the loan, or a rollover, the lenders might charge you some extra fees. However, the fee does not reduce the amount you owe and many states limit or ban these rollovers.

If you don’t repay the loan on time, the lender might charge you a late fee, depending on the state law. Additionally, your bank or credit union also might impose a non-sufficient fund (NSF) if your post-dates check or electronic authorization is not paid, because of lack of funds in your account.

How to find the cheapest Payday loans

Each Payday loan lender calculates how much to charge you differently. Thankfully, there are several online payday loan comparison sites you can use to compare deals from different providers.

Though, at the center of the calculations for each lender are two terms you should familiarize yourself with the annual percentage rate (APR).

APR is the total interest and cost you would have paid for your loan in a year. It calculates the cost of borrowing money for 12 months — a term, significantly longer than Payday, which is typically 30 days. APR is developed to calculate interest rates for long term loans, which makes it particularly unsuitable when calculating the interests for short term loans, and might appear a lot higher than the APR of a long term loan.

As mentioned earlier, a payday loan is a short term loan, with a low loan amount. Therefore, it might take a shorter time to repay the loan compared to a long term loan, with a much greater loan amount.

To get a clear picture of how much you’d pay for a loan, look at the ‘total payable cost.’ It is precise, accurate and provides you with the actual cost of the loan.

The lenders are required by US law to provide you with information about APR of the loans and other costs. If you were not given this information, the lender has violated the law and you can file a complaint with assistance from CFPB.

Are there risks involved in taking a Payday loan?

As with every other credit facility, you’re advised to conduct your due diligence and be sure you are well-informed about the particular loan you are applying for before signing the dotted lines.

That said, Payday loans, just like other short-term loans, have high-interest rates and short repayment terms. Hence, be sure you can repay the loan before applying.

Here are some advantages of a Payday loan:

  • Payday loans are a fast, hassle-free way to get cash when you’re caught short before the next paycheck arrives.
  • You don’t have to queue in the bank hall when applying for the loan.
  • No lengthy, tedious paperwork to complete.
  • You get instant feedback on your loan application status usually within the same day.

Finally, applying for a quick loan is a pretty fast way to get cash to tide you over, sort an emergency even if you have bad credit or no credit rating at all.

Written by:
Emil Kjær

Emil Kjær

Emil uses his expertise to make a difference in the financial sector. He studied at the University of Southern Denmark and has been General Manager at Intelligent Banker since 2013, where he has helped more than 500,000 users from all over the world with their financial needs.

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