Online payday loans offer a quick financial solution for individuals in need of immediate cash, often catering to those with less-than-perfect credit scores. These short-term loans are designed to bridge the gap until the next payday, but they come with high fees and can lead to a cycle of debt if not managed carefully. Here's a detailed look at how these online loans work, the requirements for approval, and the implications of rolling over the loan.
To access an online payday loan, consumers must complete an application that collects personal, employment, banking, and financial details, along with references. The application process is straightforward, but applicants must meet certain criteria:
Some lenders may also request recent bank statements and pay stubs to verify financial stability. Additionally, lenders will consider the applicant's history of non-sufficient funds (NSF) charges and any existing payday loans.
One of the key attractions of online payday loans is their availability to individuals with no credit, poor credit, or past bankruptcies. Unlike traditional financial institutions, online payday lenders typically do not pull credit reports from major bureaus like Experian, TransUnion, or Equifax. Instead, they may use services like Tele-Track, which verify banking history rather than credit scores, focusing on the status of the checking account, NSF incidents, and current payday loan obligations.
When applying for an online payday loan, honesty is paramount. Providing false information can lead to the rejection of the application. It's also crucial to apply for only one loan at a time, as multiple applications can be reported and potentially lead to all of them being declined.
After submitting the application, it will be reviewed by the lender. If the applicant meets the minimum requirements, they will typically be notified via email of their approval. Loan amounts can range from $100 to $500, determined by factors such as monthly income, direct deposit, job and residence tenure, and financial history. Repeat customers may qualify for higher loan amounts than first-time applicants.
Upon approval, the applicant must sign a contract outlining the loan amount, fees, and terms. Lenders may also require faxed copies of pay stubs, bank statements, and a personal check.
Most lenders deposit the loan amount directly into the applicant's bank account, usually overnight, depending on the application's approval time. However, loans are not processed on weekends.
On the agreed repayment date, the lender will electronically withdraw the loan amount plus fees. For example, a $300 loan with a fee of $20 per $100 borrowed would result in a total repayment of $360.
Lenders often offer the option to roll over the loan to the next payday, which can be tempting for borrowers struggling to repay on time. However, this leads to additional fees—doubling the original fee in many cases—and can quickly escalate the cost of the loan, making it more difficult to repay.
Online payday loans can be a convenient option for emergency cash, but they come with high risks and costs. Borrowers should carefully consider their ability to repay the loan on time to avoid spiraling fees and potential debt traps.
For more information on managing finances and avoiding debt, consider visiting reputable sources such as the Consumer Financial Protection Bureau (CFPB) or the National Foundation for Credit Counseling (NFCC).
Secure vs. Unsecured Loans
Essentially, there are two types of loans: secured loans and unsecured loans. Secured loans are loans in which you pledge some sort of collateral. The bank may repossess the collateral if you do not repay the loan according to the terms you agreed to when you took out the loan.
A Closer Look at Pay Day Loans vs. Bank Overdraft Fees
According to the New York Times “many national banks are encouraging clients with low balances to overdraw their checking accounts, allowing the banks to avoid credit laws and collect billions of dollars in new fees.” You might now realize that pay day loans are actually much more economical than overdraft fees from your bank.
Finding The Right Payday Loan
You’re looking to find a payday loan or cash advance loan company that is reputable, provides excellent service, and is properly licensed in their state of business.
