Payday Loans

Payday Loans, sometimes referred to as Deferred Deposit Advances, are most often loans in small dollar amounts made for a short period of time. These loans are not secured by any kind of collateral (like a car or a house). Borrowers commit to repay the loan plus a fee out of their next paycheck or other source of regular income, such as Social Security.

If you are considering applying for a payday loan, be sure you understand them thoroughly. Here are some important things to know about payday loans:

What Do Payday Loans Cost?

Payday loans typically carry a fixed fee dollar amount which is the finance charge to the person doing the borrowing. According to the FDIC Financial Institution Letters: Guidelines for Payday Lending, says that a typical charge is $15-$20 per $100 advanced for a two-week period. If the borrower cannot repay the loan within the agreed time, the lender may allow him or her to extend (or “roll over”) the loan for another period with the same fee plus an additional fee added on. It is important to understand all fees that may be incurred when applying for a payday loan.

How Do Payday Loans Work?

Payday loans may be obtained in person or online. In person, the borrower visits a payday lending store and typically obtains a small cash loan that is due in full at the time of the borrower’s next paycheck (usually two weeks). The person obtaining the loan provides a post-dated check in the amount of the loan plus a fee. On the date that the loan is due, the borrower is supposed to return to the lender to repay the loan in person. If he or she does not do so, the lender may then cash the check. If the account does not have enough of a balance to cover the check, the borrower may then incur a fee from their bank as well as additional fees from the lender for their failure to pay. Some lenders are required to offer an extended payment plan with no additional fees if the borrower cannot repay the loan when due.

Are Payday Loans Available Online?

Payday loans are available online. The borrower provides information via an online application or fills out and sends in a fax. The application requires personal information as well as bank account numbers, employer information and a social security number. Borrowers also fax copies of one of their checks, recent bank statements, and a signature. The lender then direct-deposits the loan to the borrower’s bank account and the loan repayment and electronically withdraws the loan amount and fee (finance charge) on the next payday of the borrower.

Do Payday Loan Lenders Verify Income?

While procedures vary among lenders, most payday loan lenders require several recent pay stubs to verify that the borrower has a regular source of income. They may also require copies of recent bank account statements. According to the FDIC, some lenders are less than diligent about assessing a borrower’s ability to repay the, while others use fairly sophisticated scoring models and national databases to identify people with bounced checks and/or outstanding payday loans. However, they rarely check overall the overall indebtedness or credit history of the borrower by checking the major national credit bureaus.

Payday Loan Laws

Laws for lending institutions are for the most part managed by each state. Payday loans are legal and regulated in 27 states. They are either illegal or impractical due to relevant laws in Arizona, Arkansas, Colorado, Connecticut, Georgia, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, and North Carolina. Some states regulate the maximum amount that can be charged for payday loans; some also regulate the number of loans a borrower may have outstanding at any given time. The many different rules and regulations can be confusing; Consumer Reports recommends that you check out the law in your state by visiting the database.

Payday Loan Dangers

Payday Loans can be a lifesaver if you have a one-time need for extra cash and are able to pay it off when you get your next paycheck without needing another payday loan before you are paid again. If you need to extend a loan, the additional fees can easily add up and become unsupportable.

Federal Assistance

If you have serious financial issues you may wish to consider applying for Federal Assistance. You can learn more on's Federal Assistance in the United States page.

Major reference for this article is the FDIC's “Financial Institution Letters: Guidelines for Payday Lending.” Portions of this article are also licensed under the GNU Free Documentation License. It uses material from the Wikipedia article "Payday Loans)".

payday_loans.txt · Last modified: 2012/01/06 14:17 by admin     Back to top
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