Payday Loans Explained

Payday Loans Explained

A payday loan is a safe and convenient short-term loan, created to allow borrowers to stretch their monthly budgets when the unexpected happens. Payday loans, don’t require a credit check, are usually for small amounts of cash, and typically require only a few easy steps. Most payday lenders provide their payday loan services online or in a neighborhood brick-and-mortar store. In either case, a payday advance loan can be a simple, responsible solution for a temporary budget shortfall.

How does a payday loan work?

A payday loan works very simply. The payday loan application at LoanShop is 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 lender;

Because of requirements by the Truth in Lending Act (TILA), 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.

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. The payday lender will then holds that check until the repayment date, which typically falls around your next payday.

Payday loan repayment terms, sometimes, also depend on whether you applied 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 or earlier to repay the loan for the amount borrowed plus the stated payday loan fee. Or you can simply let the lender deposit the check that had been post-dated at the time the loan is 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 the time to explore all our material on payday loans.

How long does it take to get a payday loan?

The payday loan application process, whether online or in-store, is typically uncomplicated. The requirements to qualify, when compared to other types of loans, are relatively basic: proof of income, approved proof of identity, proof of Address and an active checking account. Qualifications for a payday loan are similar for online and in-store transactions.

Payday lenders provide payday loans quickly to qualified borrowers, all for a clearly stated, up front fee. Payday cash loan borrowers are never hit with hidden charges or interest rates; all rates and fees are clearly stated in the amount the borrower agrees to repay.

How can you determine if a payday advance loan is a right choice?

First, clearly assess the financial situation. Payday loans are intended as an occasional, short-term solution and not as a source of ongoing help. If you need more help than a payday loan can provide, consider talking to a professional credit counselor.

If your cash flow problem is a short-term result of unexpected expenses, fill out an application with your chosen payday lender to find out how much you qualify to borrow, plus the fees. Only borrow the amount that you’re certain you can repay on time. If you’re able to budget the prompt repayment of your loan into your next pay period, you’re taking the responsible approach to payday loans.

When used responsibly and as intended, a payday loan works as a good alternative to late fees, credit card debt, and damaged credit scores. For short-term cash crunches, payday advance loans can be a smart solution.

How long does it take to receive funds from the payday lender?

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 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. Some payday lenders also disburse funds through a Check, which can be cashed either at the same lender location or at any banks.

How does the payday loan process look like?

The process of applying for and then getting an online payday loan is very simple, secure and fast. If you’re considering a payday advance loan as a responsible way to get fast cash, take just a few minutes to prepare before you get started.

Know your need

Before applying make sure that your need is short-term, and that you’ll be able to repay your loan on time. If an unexpected extra expense has caused you to come up short this month, an online payday loan can help. Problems that come up month after month are concerns that a professional credit counselor should handle and probably a regular unsecured personal loan with longer repayment period might be a good option.

Know if you qualify

Most of the lenders require you to have a steady source of income, a form of identification, an active address and phone number, and an active bank account. And depending on the state where you are living, most of the lenders qualify you for a percentage of your monthly income.

Choose a lender

Payday lenders differ in more ways than being similar. LoanShop provides you comprehensive information about all the lenders that we are partnered with. You get to choose the right payday lender that fits your needs.

Choose a method

Which method is the most convenient for your lifestyle: A trip to a local financial service center or a fast, private online payday loan? The application process will vary only slightly between the two.

Fill out an application

This only takes a few minutes, whether you apply online or in-store. You’ll know promptly if you’re approved.

Sign the contract

After approval, you’re almost done. The contract between the customer and lender details all the rates, terms, fees and the repayment date.


Shortly after signing the contract, the funds are yours. Then, on the agreed upon date, repayment funds will be automatically withdrawn from your account or your post-dated check will be deposited. You can also choose to return the cash to the store to reclaim your personal check.

How to choose a reliable payday loan provider?

The most important part of the payday loan transaction is you. A payday loan provider should be up front with all their rates, freely volunteer their lending practices, and comply with all state laws. You should feel confident that information you provide is secure, and that the lender is looking out for the best interests of its customers. At LoanShop we handle this step for you. We review each lender for compliance to all applicable state laws. We carefully choose lenders that we work with. Our aim is always to get you the best experience.

However, If you would like to do the ground work for yourself, here’s what to look for in a payday advance loan provider.

Membership with Governing Organizations like FISCA&CFSA

The Financial Service Centers of America (FISA) and Community Financial Services Association of America (CFSA) are the promoters of the payday loan industry in America. A reputable payday lender will not only prominently display the membership of these organizations in their stores and on their website but also committed to upholding a strict set of best practices for the most beneficial, responsible payday loan experience possible. Look for this membership while considering a lender.

Full Disclosure

CFSA & FISCA payday loan lenders agree to complete disclosure, meaning that all rates, terms, and fees will be explicitly outlined in the contract between you and that lender. There should be no unexpected charges and no hidden costs when borrowing from these loan providers. As with any contracted agreement, however, always take the time to review the terms prior to signing.

Compliance with All State Laws

Payday loan providers with the FISCA &CFSA seal have committed to abide by the laws of each and every state where they do business, whether in-store or online. This is especially important for online payday lenders whose home office may not be in your state. Some less reputable lenders may claim the most convenient, lucrative “home” for their business, leaving you to deal with fees and charges that exceed what is allowed by your home state.

When dealing with an online payday lender, always check for a physical address. Always verify that the lender has additional contact information, like a phone number and mailing address, and not just an email address. Never sign a payday loan agreement until you have confirmed that you are dealing with a reputable payday lender. Of course, one of the easiest ways to establish this is to confirm that the lender is a member of FISCA or CFSA.

What happens if the customer changes his mind after taking out a payday loan advance?

All the payday loan providers by law should give the customers the right to rescind, or return, a payday loan within a clearly stated, limited time frame with no cost. It means, the customer can just return the funds received from the Lender without having to incur any kind of fees. The best way to avoid this situation, however, is to take a careful look at your financial situation before borrowing. If you’re unsure if you really need short-term financial help, or if you’re unsure if you’ll be able to repay the loan, it might be time to reconsider your options.

If you do decide to apply for a payday loan, make sure you choose a responsible and legal Lender or got to LoanShop and select one of the many lenders in your state with competitive rates and best features.

How often can I apply for a payday loan?

Online payday loans are quick, hassle-free solutions designed to cover an unexpected monthly expense or emergency situation that falls between paychecks. Based on your residence state, Payday loans can be used multiple times with some limitations. That said, payday advance loans should only be used occasionally, and not as an ongoing financial resource.

Before you borrow, answer the following questions:

Do you find yourself in this situation from month to month, or many months out of the year?

Are you going to be able to afford the loan plus the fee within your pay cycle, and stay within your budget?

Are you borrowing just enough to help your situation or the full amount you are qualified for?

Are you looking for a payday loan as a long-term solution?

Will you have to use another payday loan to cover next month’s expenses?

Have you ever rolled over a payday loan?

Have you ever considered multiple payday loans in one month to make ends meet?

Depending on your answers, you may need professional credit counseling. DO NOT depend on a payday loan for a longer-term financial help.

How much can I borrow with a payday loan?

When it comes to payday loans, the amount you can qualify to receive depends on a number of different factors, including income level and state of residence. Online payday loans may offer a higher maximum amount than in-store payday loans.

Income Level

Payday loans are income-based loans, which is why lenders will request proof of steady employment. How much you earn will determine the initial amount you are able to receive. This keeps your payday advance loan from exceeding the amount you can afford to repay in one payday, not including other expenses.

State of residence

The laws regulating payday loan amounts in the state where you live determine the maximum amount that you can borrow. Lenders at LoanShop will offer you the maximum amount your state allows, or less depending on your income.

How are payday loan fees established?

In General, all payday loan fees are regulated and mandated by the state in which you reside. Most of the Lenders charge the maximum fees/interest the state allows. However, at LoanShop the fees are very competitive as you will have the option to choose any specific lender from Multiple offers. It is our goal to offer you the best service at the most competitive fees possible.

Is payday loan transaction confidential?

The confidentiality of a payday loan transaction depends on the reputation of the payday lender. In the case of online payday lending, security is even more crucial and depends not only on the policies of the provider but on the structure of the company’s website as well. At LoanShop we take security very seriously. We protect your information like our business depends on it, and it does. We use 256-bit SSL encryption to transfer data between your system and our servers. Also, we employ stringent measures to safeguard the data and have established processes around these requirements. Most importantly, we DO NOT sell your data to any third parties.

However, if you are in the market and would like to go directly to a lender, for the safest possible payday loan transaction, make sure of the following before providing your information:

Privacy Policy

Every payday lender should freely provide you with a privacy policy, whether you borrow in-store or online. This policy should be clear and concise and should outline all the circumstances in which your information is or is not shared with other companies. Online payday loan providers should make their privacy policies easy to locate. You can access LoanShop privacy policy here.

Secure Site

Online payday loan lenders should encrypt their sites to ensure your security. Check at the top left corner of your Internet browser for the lock icon, which means that the site is encrypted and safe. This is usually displayed right next to the website URL. You should also make sure your online transaction is secured through other means as well, like using only reputable browsers to access these websites like Internet Explorer, Chrome, FireFox, and Safari. Also, make sure that these browsers are updated with the latest security patches released periodically. LoanShop website is SSL verified and encrypted using 256-bit encryption algorithm and the website URL starts with https which means Secure and not HTTP. You can find out here what web browser(s) versions does LoanShop supports and recommends to use.

Is payday loan history reported to a credit bureau?

Reporting payday loan histories to credit bureaus varies between payday loan lenders. In most cases, a payday loan transaction history is not reported to any of the three major credit bureaus. The best way to find out how your payday cash loan provider interacts with credit bureaus would be to ask that company directly, or go to the payday loan provider’s website and see if the topic is covered in their archives or frequently asked questions. At LoanShop we make this simple. We explicitly ask our lenders to divulge if they share data with any of the credit bureaus.

Also, some payday lenders report the payment history to non-traditional Credit Bureaus. These credit bureaus collect information from non-traditional credit sources and assign the consumer a score based on regular, on-time payments of scheduled bills, such as rent, utilities, and payday loans. This can be a useful way for payday advance loan customers to build their credit and to work toward other major credit-dependent purchases with lower rates. Make sure whom the payday cash loan provider you choose reports before applying for a loan. This information shall be displayed under Special Features section of the offer when you applied for a loan.

What happens if I don’t have the necessary funds to repay the payday loan advance on my due date?

Payday loan providers vary in their procedures and policies regarding past due fees and collections. Depending on the lender, they may or may not have a fair collection policy. Be sure to review a payday loan provider’s procedures and policies regarding this and any other possible situation before you begin the payday loan application process. All reputable payday loan providers should be committed to collecting past due accounts in a fair and reasonable manner.

The best, most responsible way to prevent a difficult financial situation when it comes to payday loans is to only borrow what you know you’ll be able to repay. Here are a few examples of what can happen if you are unable to repay your payday loan on time:

If the loan provider is unable to process an automatic withdraw or successfully deposit your post-dated check, your bank will most likely charge a non-sufficient funds (NSF) fee. You will also, in most cases, be charged a returned check fee by the lender. Not only will you still be responsible for the full amount of your payday loan payment, but you will also incur expenses that can put you even further behind in the long run. If you are still unable to repay, your account may be turned over to a collection agency.

Signing a contract with a payday loan provider means that you understand the repayment procedures and that you agree to have all the funds necessary to repay the advance loan on the day it is due. Make sure you take every step possible to fulfill your responsibility, starting with only borrowing what you can afford to repay later.

Most of the LoanShop lenders offer Repayment Plans, with certain terms and conditions, to help you pay back your due amounts in installments. Please talk to your lender to find out more information regarding no interest repayment plans.

If an account becomes past due, will the customer face criminal prosecution?

If the payday loan provider that is responsible for your transaction is a member of the Community Financial Services Association of America (CFSA) or Financial Service Centers of America (FISCA), then you will face no criminal charges in the event of a past due account. Payday loan lenders who are not a member of either of these organizations may have their own policies regarding past-due accounts, and it is possible that criminal charges may be applied.

CFSA members abide by a set of rigid Best Practices, which encourage the self-regulation and responsible management of the payday loan industry. This responsibility extends to the fair treatment of borrowers who have fallen behind on their repayment. If your account becomes past due, you will still be responsible for all incurred fees, including any returned check fees, in addition to your balance and any late fees that your provider or bank have within their policies to charge you. If your payday lender thinks the situation is appropriate, your account may be given to an outside collection agency. That collection agency will then take over the resolution of any past due accounts.

Can I renew, or roll over, my payday loan by just paying the fee again on the due date?

Refinancing, or rolling over, a payday loan means that the payday loan borrower uses proceeds from a new payday loan to pay off the balance of an existing payday loan. Whether or not a payday loan can be rolled over depends on the borrower’s state of residence. Since each state has specific laws regarding payday loans, the number of times a borrower can roll over a payday advance loan is first determined by the borrower’s state of residence. The number of cash payday loan “rollovers” also depends on the policy of the specific payday lender. Here’s how it works:

State of Residence

Since a payday loan is designed to be short-term, it should only be used to cover limited, unexpected cash shortfalls. Allowing for an unlimited number of rollovers may ultimately hinder rather than help a loan borrower’s use of a payday loan. However, some states will permit rollovers, with a strict limit on how many times it can be done. Searching a payday lender’s website for payday loan regulations in your home state will help you determine if you can rollover a payday loan in your state.

Payday Lender’s Policy

In states that permit payday loan rollovers, the payday lender decides whether or not they will issue rollovers to borrowers. These lenders also determine how many payday rollovers to allow each borrower. Although most of the lenders do not require a customer to pay down on the principal with a rollover, we recommend that you pay at least $25 down on the principal when you rollover your loan. By paying down on the principle, this will reduce the amount owed on the subsequent loan.

For more information regarding your payday loan refinance options, please talk to your lender or visit their website to review the rates and terms for your state.

Why is there so much information in the payday loan customer agreement?

The payday loan customer agreement is a comprehensive document that fully outlines all terms, conditions and applicable laws of the payday loan transaction. This document is designed to provide the borrower with detailed descriptions of everything expected of both the payday loan provider and the borrower. This document also explains all state and federal laws that apply to the loan. Whether a payday loan transaction occurs online or in-store, it’s important that the borrower is provided with all the information required to make the best, most informed decision possible.

The payday loan customer agreement will contain the following:

State and Federal Disclosures

Depending on where the payday loan provider is located, state laws will vary. Some states have specific laws pertaining to the amount borrowed and can range from a flat amount to a percentage. For example, Illinois payday loan borrowers can receive 25% of their gross monthly income or $1,000, whichever is less. Alabama customers can receive a maximum of $500. There are also laws in place that define the minimum and maximum borrowing period for a payday advance loan.

Regardless of the state of the payday loan provider, federal laws will apply everywhere and are outlined so the borrower can take them into consideration.

Rates and Terms

Every payday loan provider has its own applicable charges that will affect the transaction. These are outlined in the payday loan customer agreement, including Fees, Interest, Return Fee, Late Fee and any other collection fees that will apply should the repayment become past due. This fee will be expressed in a dollar amount, as well as Annual Percentage Rate (APR) in accordance with both Federal and State law.

Does a customer on Social Security or disability, Can still get a payday loan?

In most cases, borrowers who receive Social Security or disability payments will qualify for a payday loan since many payday loan providers accept Social Security and disability payments as sources of reliable monthly income. However when applying directly be sure to confirm this with the provider you choose prior to beginning the application process.

LoanShop accepts social security and disability payments as an income source for a fast payday loan. Most of the Lenders registered with LoanShop do accept these forms of Income source. To apply online, you’ll simply need to report that this is your source of income. You are highly encouraged to upload a copy of your award letter during the application process for fast and quick approval process.

Do I need to submit any documents for an online payday loan?

If the payday loan provider you’ve chosen offers online payday loans, and you live in a state that does allow electronic fund transfer, then it is possible that you can apply online while submitting any supporting documentation. The most common documents that most of the lenders ask you to upload include:

Most recent paystub

Most recent bank statement

Proof of last loan clearing your account

Proof of identity

Proof of SSN (Optional)

Proof of Address

Most of the online lenders request you to upload these documents or provide you a fax number or request you to send them by E-mail so that the lender can promptly receive your documents and complete the application process.

While shopping at LoanShop, you will submit these documents to LoanShop and then LoanShop would forward this documentation to the Lender you have selected.

How does a customer sign online loan documents?

Online payday loans can be signed through the application, generally by checking a box. Keep in mind that online payday loans should only be borrowed from a secure website and through a trustworthy lender. Checking the box on the application serves as an electronic signature and is legally binding. Links should be available to review the loan agreement, as well as to provide the lender’s privacy policy and any other terms or conditions that may apply. Always review these policies, terms, and conditions prior to signing the application. If the lender does not readily provide this information, consider applying for a payday loan through another lender.

Online payday lenders with membership in the Community Financial Services Association of America (CFSA) and Financial Service Centers of America (FISCA) will always provide easy access to these documents for review prior to signing the agreement.

When will I receive my Payday loan funds?

Receiving your Payday loan funds is as quick as the time it takes for your application to be approved. The payout time of a payday loan varies between different lenders and the different methods of applying.

Online Payday Loans

In the case of online payday loans, your application will be approved within hours after receiving your documentation. The payout time can be soon as the next business day. The funds will be directly deposited into your approved checking account and will be ready for use as soon as you need them.

In-Store Payday Loans

The payout for an in-store payday loan is instant. The approval process should be the only wait time. This includes the verification of all documents, including proof of income, I.D., Address, phone number and active checking account. Then, after reading through and signing the payday loan agreement, you will have the cash in hand before leaving the store.

Again, it is a trade-off between convenience and speed of funds. In an online Payday Loan, you will get the convenience of applying for a loan directly from the comfort of your home along with the confidentiality provided by your lender at the cost of receiving funds on next business day. Whereas for an in-store Payday Loan, the funds are available to you in a couple of hours at the cost of having to drive down to the store and standing in the queue.

When will a particular payday loan be due?

A payday loan gets its name from its typical due date. A payday loan is due on the borrower’s payday following the approval of the loan. In general, this means one pay date from the date the contract is signed. Larger loan periods are negotiable between the borrower and lender, up to a maximum period that is regulated by state law. A payday advance loan is meant to be a short-term loan, so the loan periods, as well as the loan amounts, are regulated to protect the borrower.

Because the loan period is so short, take the time to get all the facts about a payday loan before applying. Be sure that the full repayment, including the service fee, can be worked into your budget when repayment is due. Some payday lenders will contact you with a reminder that your repayment date is coming up soon. Nevertheless, make sure you record the repayment date so you remember to make your payment on time.

When used as intended, payday cash advance loans can be a responsible option for occasional, unexpected expenses. Make sure to consider your budget and the loan repayment terms carefully to ensure that your payday loan works for you.

How do I pay back my payday loan?

You can pay back your loan by either automatic withdrawal or in-store cash exchange. There may be additional repayment options open depending on the lender.

Automatic Withdrawal

For online payday loans, you can authorize the lender to withdraw funds from your account electronically. For in-store payday loans also the lender can withdraw funds from your account by depositing the post-dated check issued while opening the loan.

In-store Cash Exchange

Some payday lenders will have the option for you to bring cash back to the store before the due date, in exchange for the return of the post-dated check. Make sure that your lender allows for this type of repayment while opening the loan.

After closing a payday loan, can I get another payday loan?

An additional payday loan can be applied for immediately as long as all the requirements are still met and there are no outstanding payday loans from other lenders. The only exception would be if state laws demand you to wait a certain period before applying for another payday loan. Lenders that abide by the laws of the state will enforce this waiting period. Afterward, you are free to apply for another payday loan.

If you need to wait before taking out another loan, take the time to consider why this restriction is in place. A payday loan is meant to be an occasional, short-term financial solution. While the option may be available to have two consecutive payday loans, it’s important to understand the purpose of payday loans and to use them responsibly.

If you find yourself needing regular payday loans in order to make ends meet, it may be time to seek serious, long-term financial help. At LoanShop, we believe it is up to you as the borrower to determine when your situation is in need of professional assistance and when you need that help in filling the gap between your expenses and income…

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