A payday loan, also referred to as a payday advance or paycheck loan, is a short term cash loan with repayment due on your next payday. This type of loan is often used to cover short term expenses such electricity bills or unexpected events like sick leave from work. When used responsibly this type of loan is an excellent alternative to costly bad check fees and late payment penalties.
To qualify for a payday loan, the lender asks the borrower to provide verification of income - usually in the form of a paycheck stub and/or a recent bank statement. After ensuring the you have sufficient means to repay the cash advance, the lender (assuming you’re in a storefront location) will ask you to write a check for the amount borrowed plus any fees associated with borrowing the money, and for you to date that check for your next payday. The lender will wait until your payday to cash the check or ask you to come into their office to repay the loan. Often you’ll have an opportunity to pay as little as the interest on the loan, and roll over the remaining amount until your next payday for another fee.
This type of short term loan often costs around $15 per $100 that’s borrowed, per pay period, with amounts up to $500 available. Usually around two weeks time to repay is given, even if you get paid weekly. Fees and repayment options vary from state to state, with some states requiring borrowers to pay towards the amount borrowed with every payment or limiting the number of times you can borrow from a payday lender. State regulation is often legislated to ensure your payday loan doesn’t become long-term debt, which could hurt you more than help in the long run.
When used responsibly, payday loans can be a valuable alternative to bounced check fees having your electricity cut off during a harsh winter. Unfortunately, due to the ease in receiving a payday loan, many people become trapped paying rollover fees and end up repaying much more money on the loan then they originally intended. It’s important with payday loans, as with all personal finances, to have a plan and budget your expenses accordingly.