Payday Loans Information & FAQs

What are payday loans?

A payday loan is commonly defined as an emergency, short-term loan, typically for a small amount of money ($100 to $1000) and repayment of the loan is typically due on the borrower’s next payday.

Payday loans are traditionally designed to serve consumers who have subprime credit scores and this type of credit should be considered as an option of last resort because of their very high interest rates.

How to get a payday loan?

To get a payday loan, you need to apply online with an online payday lender or offline at a local brick and mortar payday loan store. Online payday lenders can be found through a Google search while offline payday lenders can be found through a local business directory such as Google Maps or Yelp.

Each payday lender will have its own procedures and processes for applying for a loan.

What do I need and how do I qualify for a payday loan?

Each lender has slightly varying requirements, though most payday loans are relatively easy to get.

You'll typically need:

  • To meet the age requirement in your state (typically 18+)
  • A working phone number
  • An active checking account
  • Proof of income

What to do if I keep getting denied for payday loans?

If you're having trouble obtaining a payday loan, it could be due to any of the following reasons:

  • You don’t meet the lender’s minimum requirements
  • You don't have a steady income (ex. you are unemployed, self-employed, part-time employed, doing contract work, etc.)
  • You don’t have a checking account
  • You have multiple existing payday loans
  • You overdrew your bank account multiple times
  • You have a poor credit score
  • You have a bankruptcy record on your credit report
  • The information submitted in the application can’t be verified
  • Your debt to income ratio is too high

What happens if I don't pay back a payday loan?

Similar to many other types of loans, there are consequences for not repaying a payday loan. A lender may try to automatically withdraw the funds from your checking account, open up a payment negotiation, send you to collections, or even take action in court against you.

Not repaying a payday loan may negatively affect a person’s credit score which will make it more difficult for them to get future loans or get access to other financial products such as a mortgage loan or a credit card.

Can payday lenders sue me?

Payday lenders will usually have the option to sue borrowers who don't repay a loan on time. This is typically a last resort, preceded by collect calls and attempted bank withdrawals. This is why it's important to make sure you are capable of repaying a payday loan before taking it out.

Can you have two payday loans at once?

How many payday loans you can have at once will depend on your state. In some states, it’s possible to take multiple payday loans from the same lender. However, there are usually special requirements that need to be met that vary from lender to lender. Before you attempt to take out multiple payday loans, you should review the applicable laws in your state.

The CFPB has issued rules stating that borrowers can only borrow three payday loans at a time before a lender is required to cut them off for at least 30 days. After 30 days, the lender can lend the borrower additional loans.

Many borrowers who want to take multiple payday loans will usually get them from multiple lenders, but taking multiple high interest loans can lead to a significant financial hardship so most people are better off exploring borrowing options other than payday loans.

What are the consequences of defaulting on a payday loan?

When borrowers default on a payday loan, lenders may sue the borrower and make bank withdrawals without notice. Usually, though, a lawsuit is preceded by multiple phone calls from the lender or the collection agency.

Defaulting on a payday loan can also negatively impact your credit score.

Can you go to jail for not paying a payday loan?

You can’t go to jail for not paying a payday loan, as jail time for not repaying consumer debt such as loans and credit cards is illegal in the U.S.

However, if you are sued by a payday lender and you ignore a court order to appear, this may lead to consequences, including the possibility of jail time.

Can they garnish your wages for a payday loan?

Payday lenders can garnish your wages for an unpaid loan, but only through court approval.

Why should I be cautious of payday loans?

While the amounts borrowed are small, there are many pitfalls of payday loans that can create a major risk to consumers. The major issue with payday loans are high interest rates, rollovers and debt traps.

Payday loans should be taken out when there are no other options and the borrower is certain they'll be able to repay them.

Why do many people consider payday loans to be bad for consumers?

Payday loans are controversial because of their very high interest rates. However, the greatest danger of payday loans come from rollovers and debt traps. Unfortunately, rollovers are still practiced by many traditional payday lenders.

How can I stop payday loans from debiting my account?

To stop payday lenders from making unauthorized withdrawals of money from your bank account, consider trying the following in the order of priority:

  1. Ask your payday lender to stop withdrawing funds from your account by emailing or calling them
  2. Send a payday loan ACH revocation letter to your payday lender
  3. Send a payday loan ACH revocation letter to your bank or credit union
  4. Close your bank account
  5. File a complaint with the CFPB

Keep in mind that there are consequences for not repaying your payday loans, so you should always try to get out of payday loans in a way that won’t hurt you.

If you still owe money on your payday loan and you stop the lender from making withdrawals from your account, there could be negative consequences.

Can I get a payday loan with poor credit?

Typically, payday lenders do not check your FICO credit score when deciding whether or not to approve you for a payday loan, so it is possible to have poor or no credit history and still get approved.

Will a payday loan hurt my credit?

The majority of payday lenders do not perform a hard credit check when evaluating your application, so your FICO credit score likely won’t be affected by applying for a payday loan.

However, if you default on a payday loan and the lender sends you to a collections agency, it will appear on your credit report and will most likely damage your credit score.

Can you get a payday loan without a job?

If a job is your only source of income, most payday lenders will not approve you. However, if you have other income sources such as disability assistance, government assistance or a retirement fund, some payday lender may still approve you for a loan.

What is the average payday loan amount?

Average payday loans are between $100 and $1,000, depending on your lender and state law.

Where (in which states) are payday loans illegal?

As of 2020, the following states completely prohibit or set rate caps or usury limits on payday loans:

  • Arizona
  • Arkansas
  • Connecticut
  • Colorado
  • Georgia
  • Maryland
  • Massachusetts
  • Montana
  • New Jersey
  • New York
  • New Hampshire
  • North Carolina
  • Pennsylvania
  • South Dakota
  • Vermont
  • West Virginia
  • District of Columbia

Some other states may allow payday loans but have fewer payday lenders offering the product than in other states because of payday loan laws and regulations.

Why are payday loans so expensive?

Most lenders charge high interest rates on payday loans because the amount being borrowed is relatively low, and the nature of the loan makes it riskier for lenders. High interest rates help lenders compensate for loan defaults and low loan amounts.

What is the difference between a cash advance and a payday loan?

Both loans are short-term loans for small amounts with a high interest rate. However, cash advance loans are short term loans that can be taken out through a credit card.

Can I get out of paying my payday loans without harming my credit score?

Generally, it isn't possible to get out of paying a payday loan without damaging your credit score.

How to stop paying payday loans without defaulting on the loan?

To attempt to get out of payday loans without defaulting on the loan, a person can consider trying to repay the payday loan through any of the following means:

  • Negotiate an extended repayment option with your lender
  • Use other sources to pay off the payday loan
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