Payday Loans

Life doesn't wait to throw curve balls your way until you're ready to swing. Normally, bills stack up, your car breaks down, and you don't have the money to cover everything and you need a little help. Getting a payday loan can give you a buffer and some time to solve your financial setbacks without missing any bills.

What’s a payday loan?

There are a ton of different names that payday loans go by (cash advance, check advance, post-dated check loan, etc.), but they’re all the same thing. A payday loan is relatively small short term loan with a very high interest rate that usually has to be repaid within a couple of weeks. They get their namesake from the fact that the loan usually has to repaid on your next payday when you’ll have your paycheck deposited to your account.

How do payday loans work?

Payday loans can be quite complicated and how a payday loan in California works can be vastly different than how a Texas payday loan works since they’re governed by different laws. On top of that, payday loan structure can vary from lender to lender as well. However, we can give you the gist on how most payday loans work.

After being approved for a payday loan, most lenders will require that you write a post dated check for the full value of the loan plus interest and any additional fees to be held as collateral. Sometimes the lender will have a standard, single fee for the full loan and other times they’ll have a fee that is charged per x dollars financed. So, let’s say you are approved to be advanced a $1,000 payday loan over a 2 week term and the lender charges $15 per $100 lended. Your total fees for the loan would be $150 so you would have to write a post-dated check to the lender for $1,150.

If you don’t have enough money in your bank account when the check is cashed, you can incur additional fees which make the loan even more costly.

How do I qualify for a payday loan?

Because payday loans are a type of secured loan, qualifying is actually very easy. Payday loans are actually one of the most accessible types of loans and that’s mainly because lenders ignore your credit rating and history. This and the required post-dated check allows practically everyone to qualify for a payday loan and is the primary reason why payday loans are so pervasively popular. Nearly 12 million Americans take out payday loans each year and contribute to industry’s $9 billion in revenue.

Payday Loans Pros

Easy to qualify: The barrier for approval on a payday loan is one of the lowest in the industry so you don’t have to worry about being declined if you have bad credit. All you need is to have a post-dated check ready to hand over and that’s it! Payday lenders don’t check your credit or require a car or house title to qualify.
Quick Way to Get Cash: Sometimes you need to get cash quickly because of a medical emergency or your car broke down and you can’t wait days or weeks to be approved. With the incredible ease of approval, most borrowers will be approved instantly and you’ll be able to get your cash within a day, two at most.
Short Terms: Payday loans are some of, if not the shortest loans you can get with most loan terms being between 2 and 4 weeks depending on the vendor. This makes it very convenient for the borrower because you can be unburdened from your loan with a single payment that’ll happen automatically because of the post-dated check.

Payday Loans Cons

Target People With Bad Credit: Most borrowers take out payday loans because they can’t qualify for other loans. Whether it’s because they have bad credit, poor credit history, an unfavorable debt to income ratio, or they don’t have any collateral, payday loans are the only ones they can get.
Very High Interest Rates: While an extra $40 may not sound a lot for a payday loan, you have to remember that it’s the interest for a loan with a 2 week term. If you extrapolate that over the course of a year, you start to see the actual APR for the loan. The interest rate on payday loans averages out around 400%, but it can go above 1,000%. Bear in mind that credit cards and personal loans can be under 30%.
Risk of Additional Fees: If the lender goes to cash your post-dated check and your account lacks the necessary funds, you’re going to get nailed with fees. It’s not uncommon to see an insufficient fund fee, a late fee, and an administration / processing fee tacked onto your loan which makes it more difficult to pay off and easier to roll over into a new payday loan.
Slippery Slope to a Vicious Borrowing Cycle: Taking out a payday loan increases the likelihood of a second. This is typically because the the borrower couldn’t pay off the first loan so they take out another and roll the first into the second. If they don’t see any change in their finances, they may end up needing a third and the interest keeps accumulating. That $500 loan can quickly spiral out of control and become a $2,000+ loan because they have to keep paying on the fees and interest.

Can I get a payday loan in my state?

As we mentioned before, payday loans work differently from state to state and that’s due to the fact that the state laws on these loans vary greatly. Some states simply don’t allow money lenders to provide payday loans while other states limit the amount and number of fees for their loans as well. There’s also the fact that some payday vendors choose to not serve certain states based on said state’s laws on their business practices.