How Do Payday Loans Work: Your Complete Guide

Did you know that almost 60% of Americans can’t afford a $1,000-dollar emergency because their savings are too low?

Whether you need to repair your car, pay an unexpected medical bill, or something else, you can rest easy knowing that options exist. For instance, you can take advantage of small loan amounts. That way, you can get quick cash to cover your emergency and pay it off over time.

Are you asking yourself, “How do payday loans work?” Keep reading to learn all about it with this complete guide.

What Are Payday Loans?

Put in the simplest terms possible, payday loans are short-term loans. Instead of taking out a second mortgage that’ll last most of your life, you can get money faster and pay it off faster as well. By providing your debit card information or sending the lender a post-dated check, there’s the option of getting the money you need on the same day you apply for it.

If you choose to pay back the loan using a check, then the lender will cash your check on the date that you specified on it. With a debit card, the loan provider can take out the money also on a specific date in the near future. The other option is setting up a date and time when you’ll visit the lender again in person and bring the loan repayment as physical money.

Keep in mind that the laws and regulations of payday loans can vary from state to state. In some cases, the amount you can borrow will be limited. States may also have a cap on the interest rates and associated fees that a loan provider can ask for without breaking the law.

Requirements for a Payday Loan

While payday loan providers are laxer than other types of loan providers, they still won’t hand out cash to anyone who walks through the front door. For starters, you should be at least 18 years of age or older.

You should also have identification that can not only confirm your age but your identity as a whole. Most loan providers will want two qualifying forms of identification, such as a driver’s license, a military ID, a passport, a social security card, or even a birth certificate.

You’ll also need to provide proof of income. As a traditional employee, this can be as simple as bringing in some pay stubs. You could also show your tax returns or 1099s.

A freelancer worker may not have paystubs as proof but tax returns and other documents like this are often sufficient. The one other thing you’ll most likely need is an active checking account.

Once you’ve gathered proof of these requirements, you can get your loan approved in as little as 15 minutes. Few things can beat that convenience.

The Consequences of Not Repaying the Loan

Sometimes emergencies can’t get solved overnight or even within a week. You might find yourself in a situation where you can’t pay the loan back as you planned on doing.

One possible solution would involve renewing the loan and pushing back the loan repayment date. This means the lender will treat it like a second loan and tack on the associated fees. One major disadvantage of a payday loan is the significant interest rates it can come with.

While the rates can vary from lender to lender, the average rate is a whopping 260%. It’s not hard to see how this percentage can turn a small loan into sizeable debt that makes your situation worse than it already was. This is why you should never take out a loan without a solid plan for paying it back on time.

There’s also the possibility of the lender reporting you to a collection agency. This can lead to the agency or a debt collector reporting you to credit report providers. The last thing you’d want to do is jeopardize your credit score.

How to Find a Legitimate Lender

If you want to get the most out of your payday loan benefits, then it’s important to work with a lender that’s legitimate and reliable. There are plenty of predatory loan providers out there who have borderline illegal interest rates, for instance.

One of the best ways to avoid a lender of this sort is by reading reviews from past customers. Any loan provider that’s legitimate should have at least some reviews and ratings that you can check out. The reviews should give you a general idea of what to expect when it comes to cash advance fees, customer service, and more.

A loan provider should also be upfront about their rates and fees. It should be easy to find this information on their site. If they make you dig for it or try to dodge your questions when you reach out to them, then it’s best to take your business elsewhere.

If you’re on the fence about getting a payday loan, then you’ll be glad to learn there are other options out there. For instance, personal loans are often less risky because they don’t come with skyrocketing interest rates. You can even get quick loans for your bills.

How Do Payday Loans Work? 

Has a friend or family member ever asked you, “How do payday loans work?” Now that you’ve learned all about it, you can explain the process to them in detail. If you both need payday loans, then you can walk your loved one through the process.

We are dedicated to helping people get the loans they need as fast as possible. We don’t ask for any information beyond what’s necessary. That way, you can repair your car or do anything else that needs to be taken care of.

Be sure to fill out this form to get the ball rolling.