Payday Lending: What Is It?

Payday loan lenders are companies that hold large insured deposits to make payday loans from. Payday loans are small loans that run over a short term. They are intended to help a borrower with emergency expenses between paychecks. Payday loans are usually for just a few hundred dollars, and generally must be repaid in a month or less. Payday loan lenders generally work with anyone who can provide proof of employment, and extend loan opportunities to many people who would be unable to qualify for help from banks or other traditional lending institutions.

Obtaining a payday loan usually requires presentation of one or more pay stubs to prove that the borrower can repay the loan. Lenders also require proof of a current bank account, a picture ID such as a driver's license to prove that the borrower is who he says he is, and possibly a utility bill in the prospective borrower's name, to prove that the borrower is reliable and stable. If the prospective borrower can prove that he or she holds a regular job and makes enough money to be able to repay the loan then the lender will usually decide that that prospect is a good risk, and will loan out between $100 and $1000. The amount of the loan will depend on the lender as well as on the borrower's ability to repay the loan.

Many lenders operate out of specialized stores, and the prospective borrower usually goes to one of these lending stores to obtain a payday loan. Once at the store a representative of the lender will ask for the employment and banking information, as described above. Payment in full is usually due at the date of the borrower's next paycheck. This usually makes for a term of about two weeks. Interest and fees generally range between 15 to 30% of the amount lent to the borrower. Usually the borrower will write a check to the lender postdated to the due date with the full amount of the loan plus the fees and interest owed. The borrower might also return and pay the loan in person, or might also be able to repay the loan electronically.

Most cities will have one or more payday loan locations. Even where no lender is available, such as in some suburban or rural locations, online lenders can provide payday loans for anyone at any time. The prospective borrower seeking a loan from an online payday loan lender will fill out an online application form or fax one to the lender. The loan is then direct deposited to the borrower's checking account. Usually load will be repaid by an automatic withdrawal from the borrower's checking account on the day loan matures.

Some lenders will refinance loans a borrower is unable to repay. Because the lender expects to collect on loan on the maturity date some lenders charge fees if the borrower is unable to repay the loan. Because of this prospective borrowers would be wise to comparison shop, and compare the terms of several different lenders. Most reputable payday lenders will try to work with a borrower if he or she experiences trouble repaying the loan. If used wisely, payday loans can be greatly beneficial to working people faced with unexpected expenses or loss.