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Vehicle repairs, medical co-payments, unexpected purchases, and emergency travel expenses are just some of the reasons why someone may need a payday loan. If a consumer understands all of the borrowing terms of a payday loan and uses the service responsibly, a payday advance can be a source for funding those unexpected costs that cannot be avoided. Borrowing from friends and relatives is not always an option so an alternative way to obtain the necessary money can be found by applying for a payday loan.

Aspects of a Payday Loan
There are specific features of a payday loan or sometimes referred to as a payday advance that are not found in bank or finance company loans. These nuances are usually what draws a consumer to obtain a payday loan.

A payday advance is usually offered for small amounts. They can be as low as $50 or as high as $500.

The term payday implies that the loan will be paid in full with the consumer’s next paycheck or other source of income such as pensions or government benefits.

Repayment of the loan will generally be done with an electronic debit to the customer’s bank account or prepaid card account. This repayment will include all fees and interest amounts.

The payday lender does not take into consideration other debts that a consumer may have. The main criterion for granting a loan is usually that a source of income can be verified and that the amount of income meets the lender’s state guidelines.

The customer is given a choice of how to receive the funds. It can be in the form of cash, check, or direct deposit into a bank account or a prepaid debit card.

Typical Requirements to Obtain a Payday Advance
An active bank, credit union, or prepaid card account

Documentation to prove and verify current source of income

A current and valid form of identification

Costs and Fees Associated With Payday Loans
Some lenders will charge an application fee and bank fees, but the biggest cost of borrowing money from a payday lender will be the interest amount. The Annual Percentage Rate — APR is regulated by the state’s statutes for payday loans. There is a wide range of interest rates in the states that do allow payday advances so it is a wise step before borrowing money to look up a particular state’s payday loan laws. If a consumer wants to minimize the amount of interest owed on a loan, it is a good strategy to borrow the money for the least amount of days before the due date.

When it comes to paying back the advance, a customer may have to use a rollover plan that will entail additional fees. The loan would then cost the original amount borrowed, any additional fees, interest charges for additional days outstanding and a rollover fee. This repayment example would be a very expensive one.

Repaying A Payday Advance
Before accepting the funds and before signing the borrower’s agreement, it is extremely important to understand all of the details of repaying the loan. A typical written agreement will show the principal amount borrowed, the day of disbursement of funds, the interest rate, and the due date of the loan.

When the due date arrives, an ACH — Automated Clearing House authorization will be presented to the borrower’s bank for payment. Some lenders will offer a lower APR rate if repayment is done electronically but payment can also be made in person at the office of the payday lender. If there are insufficient funds at the bank, an additional fee will be charged to the customer.

State Regulation Laws
All payday loan centers that are located in states that allow them are regulated by state statutes. The key components of the laws outline the maximum loan amount that can be borrowed, the maximum loan term, and the finance charge rates. There is additional information that gives more detail to these three key factors. Each state’s laws can be found on the internet in an easy to read format and documentation from the lender also outlines important information about the options available to the consumer.

Use Online Payday Lenders With Caution
Brick and mortar offices are not the only places that offer payday loans, but because of reported scams, consumers are advised to take heed when dealing with online companies.

Potential borrowers should make certain inquiries about the company, such as whether the company has a valid license to operate in their state and what is the physical street address of their office. Before finalizing a transaction, all the fees should be made known to the customer and the borrower should receive a written confirmation of the transaction.

Payday loans, if obtained from a reputable company, can be the solution for an unexpected financial obligation, but it is, ultimately, the responsibility of the borrower to enter into the loan agreement knowing all the facts and accepting all the terms.

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