How do payday loans and cash advances work?
An explanation of how a payday loan or cash advance typically works
Let’s say you want to borrow $300 until your next paycheck. You write a
personal check to the payday lender for $345 (the $300 you want to
borrow, plus a $45
fee). The lender gives you $300 and agrees to hold your check until your
next payday or another agreed-upon date in the very near future.
date arrives, either you redeem the check by paying the lender his or
her $345 in cash, or
the lender deposits your original check into his or her bank to collect
payment. You may also roll over the
check by paying a fee to extend the loan for another two weeks. If you
don’t have the money in your account to cover the check you wrote, you
could incur bank fees for bounced checks.
Process for an Online Payday Loan
and Cash Advance
The lending process for an online payday loan or a cash advance is very simple.
Generally all online payday loan companies follow very similar
procedures. The steps to obtaining your payday loan or cash advance are
1. You must
first read and complete the payday loan company’s online application form.
By answering all the questions as completely and accurately as possible,
you can make the application process go quickly and smoothly.
2. Normally a representative
from the payday loan or cash advance company will contact you over the phone after they
receive your application. This representative will ask questions to make
sure that you have completed the application form correctly, and will
finish processing your application. Sometimes the representative may ask
you to provide additional documents by fax to support and verify
the information you submitted on the application.
3. After you
payday loan or cash advance is approved, the money you have borrowed
will be deposited electronically directly into your back account. This
process is very fast; the money will be available for your use within 24
4. The payday
loan company will inform you when your payday loan will be due. When the
due date for your payday loan arrives, the payday loan company will
automatically withdraw the original loan amount plus the loan fee they
have charged you from your bank account. At that point, your payday loan
or cash advance will be repaid in full.
for a Payday Loan or Cash Advance
The requirements to qualify for a payday loan or cash advance are much
less than for qualifying for a standard bank loan. Payday loan companies
try to make it as easy as possible for you to qualify for a payday loan
or a cash advance, while still doing what is minimally necessary to
protect their own interests. They make it very easy for almost anyone to
qualify for a payday loan. Generally, the minimum requirements are the
A full credit check is not needed.
You must be currently employed or
have some other regular source
Different payday loan companies
will have different requirements about minimum income.
You must have a U.S. bank account
that is in good standing.
You must be at least 18 years of age.
You must be a U.S. citizen
or a permanent resident.
Some payday loan companies may have
additional requirements, but these are generally the minimum
requirements that you must meet to qualify for a payday loan or cash
for a Payday Loan or Cash Advance
Whether you have obtained your payday loan in person at a store or over
the internet, payday loan companies normally offer their clients
different options on how they can pay off their payday loan or cash
advance when it becomes due. There are three payment options that are
usually offered by payday loan companies:
can pay the entire amount of the payday loan on the due date. The entire
amount consists of the amount you borrowed and the loan fee that the
payday loan company has charged you.
can pay the loan fee and only a portion of the amount you borrowed on the
due date. This will extend the length of your loan. The payday loan
company will give you a new due date and require an additional loan fee
from you on your next due date.
You can pay only the
loan fee on the due date. Again, this will extend the length of your
loan. The payday loan company will give you a new due date and require
an additional loan fee from you on your next due date.
The best of
these three options is to pay the entire amount of the loan on the due
date, if you are able. Extending the length of your payday loan means
paying more loan fees, making the loan more expensive to you.