What Is a Payday Loan?

You’ve probably heard of the term before, but what exactly is a payday loan? A payday loan is pretty much what it sounds like: a short-term loan amount or cash advance to get you through to your next payday.

Whether you’re in between jobs and need some extra money to bridge the gap or have unexpected expenses come up and don’t have enough on hand to cover them, payday loan services can help.

Because this type of personal loan is short-term, interest rates are typically higher. In addition, instead of paying it back in regular increments—like with installment loans—usually you pay the loan back in one lump sum once you receive your next paycheck.

Keep reading for more information!

Payday Loans 101

Before you seek out a payday loan, it’s important that you understand what you’re getting into—and who you’re getting into it with. Because of high interest rates, most payday loans can put you in a tough spot, especially if your payday lender isn’t trustworthy.

Some payday lenders will not consider the borrower’s ability to repay the loan, and instead opt for an extremely high interest rate that can create a debt trap for the borrower if they aren’t careful.

In addition to this, it’s common practice for online lenders to request direct access to the borrower’s bank account to take the money that they’re owed out when their next paycheck is deposited.

How Do You Avoid Being Taken Advantage Of?

This is why you don’t want to borrow money from just anyone.

You’ll want to thoroughly vet your payday lender before agreeing to any kind of loan amount. Make sure you’re working with a business that specializes in this type of loan—or loans similar to it like car title loans.

How Do You Pay Back a Payday Loan?

There are several ways you can pay back a payday loan. For starters, it’s important to understand that a payday loan does not require you to put up any collateral like you would have to with other kinds of personal loans.

Personal loans that don’t require collateral are also called unsecured loans.

Like mentioned above, instead of collateral, payday lenders will often seek (with your permission) to electronically withdraw the money they’re owed from your bank account, credit union, or prepaid card account.

Can You Pay Back a Payday Loan in Installments?

Again, the emphasis on payday loans is that they’re short-term. They’re meant to help you get from point A to point B and then be repaid.

How Much Does a Payday Loan Cost?

The cost of these kinds of cash advance loans are typically somewhere between $10 and $30 per $100 borrowed. Things start to get messy if the borrower is unable to repay their payday lenders.

Typically a fee is added and the cycle repeats. This is why it’s so important to understand payday loans! Sometimes an installment loan might suit your situation better.

But if you simply need some cash upfront, your maximum loan isn’t too high, and you know you’ll be able to pay it back, a payday loan can really help you out.

How Much Can You Borrow with Payday Loans?

Similar to other types of personal loans like auto title loans, payday loans have a cap or maximum amount. The average payday loan amount is around $350, but some states will let you borrow up to $1,000.

Some states also take your income into account, which is good for you. In Nevada, for example, payday loans are limited to 25% of the borrower’s monthly income. That means they won’t loan you more than that, which can help keep you from falling into a debt cycle.

Can Paying Back a Payday Loan Help You Get A Good Credit Score?

Unlike an installment loan, payday loans don’t usually help build your credit score. This is because a lot of payday loan lenders don’t report on-time payments to credit bureaus.

On the flip side, failing to repay payday loans can have a negative affect on your credit score.

Your payday loan lender could report this or sell the debt to a debt collector that will report it, which can damage your credit score.

How Do You Qualify for Payday Loans?

To qualify for payday loans, you typically need to have a bank account, a valid ID, and some sort of proof of income.

US Auto Title & Payday Loan Is Here to Help

Did you know that four out of every five Americans live paycheck to paycheck? If you’re struggling to make ends meet between jobs or you have an unexpected expense pop up, know that you’re not alone.

Millions of people turn to trusted lenders every day for a little extra help. We hope we’ve helped answer your preliminary query: What is a payday loan? If you could use some extra financial help, get in touch with one of our lenders today. We’ll be happy to walk you through the process and answer any other questions you might have!

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