How Do Online Payday Loans Work

How do Online Payday Loans Work?

A payday loan works very differently than a traditional loan. Most online payday lenders only ask for your identity, bank account, and a regular paycheck. Once they verify that you have a regular monthly income received on a particular day, they will transfer loan funds to your bank account.The process takes only a day or two to finish and is the fastest way to get a loan.To secure their money, payday lenders get approval from you to automatically withdraw funds from your account on your next payday. A fixed amount is charged as interest which is also debited from your paycheck. You may also be given an option to write a check to your lender that will cash on a specified date as per your arrangement.

How do you Apply for an Online Payday Loan?

You can easily apply for a payday loan from the comfort of your home. Do not forget to check out the legal requirements in your state. Some states ban these loans altogether. Look for the best options available online and fill out the form asking for your basic information. You will either receive an instant call from the payday lender or taken to the next web page to fill out your requirements. Your loan will be passed quickly if you have a bank account and a constant monthly income.

How Much can you Borrow Through a Payday Loan?

The rules for payday loans vary from state to state. Depending on your state, you can get a loan with an upper limit of $300 to $1000. That does not mean you will get the highest amount that is allowed in your state. The online payday lender will assess your income level, monthly expenditure, and previous payday dealings to determine the amount of loan.

How Much Does a Payday Loan Cost you?

As a payday loan gives you money instantly for your convenience, they charge exorbitantly for the service and comfort they provide. As per the Consumer Financial Protection Bureau, the median online payday loan costs around $23.53 for a $100 loan. That amounts to 613% Annual Percentage Rate as against 20% in the case of traditional loans.

Despite the high costs, it has been estimated by The Economist that 2.5 million American households take out payday loans every year. There are many reasons for them to pay higher costs.Poor credit score, lack of knowledge of other available alternatives, and quick procedure of payday loans are the major factors that contribute to their success.

What Happens if you Cannot Repay a Payday Loan?

Depending on your state laws, you can ask your lender for rolling over the loan to your next payday. Some states might not allow this, so check for yours in advance. Your payday lender will either renew your existing loan or renew it to a new one. This will add up to your costs in the form of interest, so beware of getting trapped in the cycle of debt.

If however, your state does not allow rolling over of loan or your lender doesn’t agree to do so,you might get into trouble. Your payday lender will continue with his attempts to withdraw money from your bank account and with each failed attempt, you will incur bank charges. The lender will also get in touch with you and your references to recover the loan amount. You might receive legal notice from your lender’s lawyer.