Payday Loan Information - What is a Payday Loan?
You might wonder what a payday loan is, whether you need one, and if so, how you go about getting it.
Basic definition of a payday loan
Traditionally, a payday loan is a small, short-term loan that comes due when you are next paid. These types of loans originated to help individuals cover emergency expenses or other obligations that might come up between checks when there was no money left from the previous payday. Usually:
The amount borrowed is relatively small, typically under $500.
The loan is paid back when you receive your next paycheck or another agreed-upon date, often within a two-week or one-month period.
You provide a postdated check or access to your checking account so the lender can process payment for the balance plus fees and interest on the agreed-upon date.
How do payday loans work?
At LendUp, we’re a short-term loan provider rather than what many consider a traditional payday loan provider, but we understand that individuals might seek our loan services for the same reasons they might seek a payday loan. While we are happy to provide qualified clients with the short-term loans they need to make it through the next few weeks, we also want to see our clients succeed financially long-term. That's why we encourage all our customers to take advantage of our free credit education and to understand the details behind any financial arrangement they are a part of.
Applying for payday loans
The process for applying for payday loans or short-term loans depends on the lender in question. Most require some basic information, and some check your credit and base a lending decision in part or entirely on your score. At LendUp, we require potential borrowers to complete a very simple and fast online application. You just need to be 18 years old or older, have valid contact information and have a checking account that accepts electronic transfers to apply. LendUp can't approve everyone, but we’ve approved people without good credit in the past.
Receiving payday loan funds
Lenders provide funds in a variety of ways to those who are approved. Some lenders provide cash on-site and others provide a check. Online lenders usually provide funds with a transfer to a checking account. LendUp funds approved loans via a banking transfer using your checking account, usually by the next business day. For more details see FAQ.
Paying back payday loans
The manner in which you pay back a short-term loan is also dependent upon your lender. As previously stated, you might be required to sign an agreement to have the payment come directly out of your account on an agreed-upon date. You might leave a check with the lender, which it will cash on the agreed date.
One thing that's important to understand when seeking information on how payday loans work is the concept of rollovers. Rollovers, which are also referred to as renewals, let you renew the principal balance of the loan without making a total payment. Instead, you pay only the fees and interest that accrued and reinstate the loan again. A disadvantage to this process is that you can become caught up in a cycle of debt and never fully repay the loan. This is why LendUp doesn't have rollovers. If you can’t pay on time, we’ll talk to you about a payment plan that works for you.
Why might you use a payday or other short-term loan?
There are unlimited reasons for seeking a short-term loan. A lot of things can happen between paydays, especially if you are paid biweekly or monthly. Instead of asking friends or family for money, particularly if they might be dealing with their own financial struggles, many seek a short-term loan. A short-term loan can also be a way to ensure you put food on the table, fix a vehicle or keep the power on without incurring overdraft or late fees at your bank.
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