How Do Payday Loan Works

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What Are Payday Loans Online?

A payday loan is a short-term loan that can help you cover immediate cash needs until you receive your next paycheck. These are small-dollar, fee-based loans with repayment normally due on your next payday. Terms vary based upon state law, so there are variations in size, length, and fees allowed for these loans.

How Do Online Payday Loans Work?

Payday loans function differently than personal and traditional consumer loans. Depending on where you live, you can get a payday loan online or through a storefront location of a payday lender.

Different states have different laws surrounding payday loans, limiting how much you can borrow or how much the lender can charge interest and fees. Some states prohibit payday loans altogether.

If you are approved for a payday loan, you may receive cash or a check or deposit the money into your bank account. Direct deposit is the most common way you receive your loan funds. You pay back your loan in full plus the fees on your loan due date, which is typically your next paycheck.

Payday loans come with set fees, which are based on your loan amount. Because payday loans have such short repayment terms, these costs translate to a steep interest rate or APR. APR is not a good indicator as it is an annual calculation, and the loans are one month or less in almost every state.

Payday lenders have far fewer requirements for loan approval. Most do not run hard credit checks or even require much from the borrower other than proof of current income. All you typically need is identification, a bank account in relatively good standing, and a steady paycheck.

How Much Can I Borrow with an Online Payday Loan?

The average payday loan is around $300. But payday loans range from $50 to $1,000, depending on your state's laws. Most states cap payday loans at a maximum of $500.

Payday Loans and Credit Scores

Most payday lenders do not perform hard credit checks as it is not the most important loan criteria for payday loans. Stable employment and income are the #1 concern of payday loan lenders. As a result, bad credit payday loans are common.

However, if you fail to pay your loan on time, you could be subject to additional fees and collection agencies, and even civil court, impacting your credit score. Criminal charges are not allowed in any state in the country.

The requirements for qualifying for an online payday loan include:

  • Be at least 18 years old
  • Be a US citizen or legal resident with a current ID
  • An active checking account with a bank or credit union
  • Have an income of at least $1,000 or more currently
  • Have a current residential address, phone (cell is fine), and email

Some Benefits of Payday Loans Online

Some people say that online payday loans are not a positive form of borrowing, but there are benefits to these loans. Here are a few:

  • Most people will qualify for a payday loan when all other lenders never consider your request
  • Payday loans help you with emergency expenses like auto repairs, medical bills, utility bills, or other urgent expenses
  • They are the fastest possible loan you can get, so you have your cash when you need it most
  • They are fee-based, so if you pay it back on time, you know exactly your repayment

What Are the Costs of an Online Payday Loan?

The costs associated with payday loans are set by state laws, with fees ranging from $10 to $30 for every $100 borrowed. The average payday loan costs $15-20 per $100 borrowed.

So, if you borrow $200 on a payday loan and your lender is charging a $15 fee for every $100 borrowed, you will owe $230 when the loan is due. That is a simple interest rate of 15%. But if you calculate the annual rate or APR, it is then almost 400%. Payday loans are never intended as long-term loans and not annual ones. But the longer the loan goes, the more expensive it becomes, so you want to avoid extending the loan or late payments.

How Do I Repay My Payday Loan?

You are generally required to repay a payday loan with a single payment on your next payday. Because lenders have varying repayment terms, make sure to ask for the specific due date or check for the date in your loan agreement.

Depending on the lender and the state you reside in, you may have options to pay off your debt:

  • A post-dated check before your loan funds
  • A review of your next payday
  • Online through the direct lender's website
  • Direct debit from your checking account
  • Some other form of credit

The most common repayment form is a direct debit from your checking account. Very few lenders will allow other forms of repayment.

Is a Payday Loan worth the Risk?

A payday loan can solve an urgent need for money in an emergency. However, because these loans usually have high fees, there is a risk of getting caught in a cycle of debt. Most states allow payments of between $10 and $25 for every $100 borrowed, which is not much more than credit card costs. But it should be your last option to consider. There are many more cost-effective possibilities.

Who Uses Payday Loans Online and Why?

Millions of Americans get online payday loans every year. It is estimated that more than half of all Americans have less than two weeks of cash reserves. When unexpected expenses hit, there may be a cash shortage until your next pay date. Contacting direct payday loan lenders through a referral service like CashinaMoment is one of the best ways to get an online payday loan. Safe, secure, fast, and no driving around to storefronts and wasting your time and gas money.

Auto Title Loans

Some people choose auto title loans, but only a handful of states allow these types of loans. One of the biggest problems with auto title loans is that you are giving your car as security. If you miss or are late with a payment, you could then have your car repossessed. This is a big risk to take since you need your car. The loan amounts are usually greater, but the risks are also much greater, and costs are like a payday loan. Most people find online payday loans as a better option.

How Do Payday Loan Works - FAQs

Some payday lenders will offer a rollover or renewal feature when permitted by state law. Most states do not allow these rollover loans. A rollover loan is due soon, and the lender will enable you to roll over (or continue) into a new or modified loan. There are additional fees associated with this transaction, and it is not recommended unless it is necessary. Again, very few states allow this type of transaction.

Payday lenders do not perform hard credit checks, that is, ones using the big credit bureaus. Thus, applying for a payday loan does not affect your hard credit scores or appear on those reports. As a result, these loans do not help you improve your credit score.

Not all states allow payday lending, but most do. Those that allow payday lending require payday lenders to be licensed. If an unlicensed lender makes a payday loan, the loan is considered void. This means that the lender doesn't have the right to collect or require the consumer to repay the payday loan.

Each state has different laws regarding payday loans, including whether they're available through a storefront payday lender or online. In states that allow payday lending, you can find information about licensing through your state's bank regulator or state attorney general.

CashinaMoment is a referral source for 100 licensed, legitimate, direct payday lenders. Payday lenders must be licensed in all states they work in to protect consumers. Gone are the days when lenders could operate from a temporary storefront.

Any online payday loan site should be fully secure. You can ensure the website is protected by just looking at the URL of the site. It must have the https:// at the beginning of the URL. The ‘S’ stands for Security or Secure and indicates the site is using encryption technology to protect any user. Without this, you should not use the site in any way. Every state has a website, and they list the regulations related to all forms of lending, including online payday loans. All states now require lenders to be licensed in each state before offering lending services.

This protects you from fraud. If you request a loan and are approved, you should always ask your lender if they are licensed in your state. Never listen to any loan offer that requires a ‘deposit’ in advance. This is illegal, and no legitimate lender does this. A scammer makes any request for deposits of any kind, often an offshore company that is not worried about U.S. laws.