How does a payday loan work?
A payday loan works very simply. The payday loan application typically requires just a few simple steps, the fees are straight forward and stated upfront, and most borrowers experience fast approval time. For occasional cash shortfalls and unexpected expenses, a payday loan can be a good source for fast cash when you need it. Here are the basics:
After filling out a payday loan application and getting approved, the borrower signs a contract with the payday lender;
Because of requirements by the Truth in Lending Act (TILA), payday loan contracts eliminate the possibility of any hidden fees or terms. Under TILA the contract will clearly state the terms of the agreement, including a repayment date, the full amount required for full repayment, and the APR that applies to the amount borrowed. As with any legal document, be sure to look over and understand the terms of any payday loan contract before signing.
After signing the payday loan contract, receipt of payday advance loan funds depends on whether the borrower applies online or in-store:
If you apply for payday loans online and are approved, your funds will be directly deposited into an active checking account. Your payday loan will be available to you on the next business day.
If you apply in-store and are approved, your payday loan funds will be available immediately. You will typically need to provide your payday lender with a check, post-dated for when your repayment is due, for the full repayment amount plus the stated payday loan fee. The payday lender will then hold that check until an agreed upon repayment date, which typically falls around your next payday.
Payday loan repayment terms also depend on whether the borrower applies online or in-store:
For online payday loans, you will repay with a pre-authorized electronic withdrawal from an active checking account for the amount borrowed plus the stated payday loan fee.
For in-store payday loans, you can return to the store on the scheduled due date to repay the loan for the amount borrowed plus the stated payday loan fee. You can also simply let the lender deposit the check that had been post-dated at the time the loan originated.
That's all there is to it; a payday loan is just that simple. Keep in mind that payday loans only work well when used for occasional, short-term expenses. To find out more information about using payday loans the right way, take time to explore more of our payday loan FAQs.