How Payday Loans Work

The basic loan step is simply that a payday loan lender provides a short-term loan to be repaid at the borrower's next pay day.

Often employment or income verification is required by payday lenders, but payday loan companies each have their own terms and requirements.

Borrowers typically would use online payday loan services or visit a payday lending firm to take out a cash loan.

Repayment of the pay day loan is normally due in full at the loan borrower's next paycheck, and a postdated check would be written at the time the payday loan was taken out to cover the loan plus fees. This is used as security by the payday advance company and may be cashed should the borrower not repay the loan.

Online payday loans require consumers to complete an online payday loan application on the internet. The loan is then transferred to the borrower's account via direct deposit, and the paydayloan repayment and fees paid electronically on the consumer's next payday.

Many online payday lenders do not perform credit checks or verify income.

Payday Loan Example

A borrower requires $1,000 to repair their car but is unable to afford the cost prior to payday. The payday lender agrees to provide a loan of $1,000 until the borrower's next payday. At that time the borrower then returns the $1,000 together with the additional interest rate cost applied to the loan.