How does a payday loan work?

A payday loan is a simple, short-term loan when you need fast cash. Most payday loan applications usually require a few simple steps, most borrowers experience fast approval time, and the fees are straight forward and stated upfront. For occasional cash shortages and unexpected money needs, a payday loan can be good for fast cash right when you need it. Here are the basics:

You, the borrower, fills out a payday loan application and submits it for approval.

Upon approval, you agree to pay the payday lender back on your next payday, plus an interest payment of fee. This agreement acts as a contact between you and the payday loan 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.

Once you apply online, are approved, and agree to the contract, your funds will be directly deposited into an active checking account. Your payday loan will generally be available to you on the next business day.

During the application, 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 holds that check until an agreed upon repayment date, which typically falls around your next payday.

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.

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.


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