How Do Payday Loans Work

As you may know, a payday loan is short term loan with a higher interest rate than a home loan or credit card. However, as those are based on long-term lending, these personal loans are based on the fact that you will repay the loan on your next paycheck or shortly thereafter. Today, we’re going to take a look at how payday loans work and what protects you and the lender.

What to Expect When You Open a Payday Line of Credit 

Obtaining a loan from a payday lender is a relatively easy process. First, you need to be sure that you have what it takes to obtain the loan. While the specifics will vary due to laws and specific business operations, there are a few things every payday lending company will ask for.

  1. Regular Income: First, you should have a regular job from which you draw a stable income. In general, the longer you are at this business, the better. For example, iCash in Canada requires that you have a stable income from the same source for at least three months before you come to them.
  2. A Bank Account: Next, you should have a bank account. This can be with a credit union, an online bank, or even a traditional banking institution. The important part is how long it has been open. Again, the longer, the better.
  3. A Permanent Address: Lastly, you will need a permanent address from which you live and pay bills. This will help in establishing your credibility. Again, the longer that you’ve been at this location, the better it looks for you. 

How to Apply for a Payday Loan

When looking for the loan amount that you will qualify for, there are a few steps that you need to go through. Most businesses, like iCash, for example, have simplified this so that you can know what you are offered and even get it the same day. 

  1. To begin, you will fill out an online or in-person sheet. This will ask for your monthly income, age, address, and a few other factors, including permission to run your credit score. 
  2. With your information, either a person or a system will look over your credit report, payment history, and other factors to determine your risk and worthiness rating. Usually instant, this process allows you to see if you have been approved, for how much, and at what rate. 
  3. Following your offer, you can sign the document and, in many cases, get your cash the same day in person or via e-transfer. 

Paying Back a Payday Loan

When you obtain a payday loan, you will have a payment plan picked out ahead of time. In many cases, this will be a complete repayment of the loan all at once upon the next one or two paychecks. Some payday lenders that have in-person offices will require you to pay them via check at the office that you got your loan from. Other vendors, mainly online vendors, will ask for your bank information so that they can pull your loan payments right from your bank. This makes sure that you never miss a payment and gives them peace of mind when lending.