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How to get a payday loan
A step-by-step guide to applying for this short-term form of financing.
A payday loan can help cover an emergency expense when you can’t qualify for other forms of financing. While the application process is relatively straightforward, there are a few steps you should take beforehand to ensure this is the right financial move for you.
5 steps to take before applying
Payday loans can be risky. Before you apply, make sure this choice is right for you and know your state laws.
Step 1: Consider your other options.
A payday loan — or any short-term loan — can be very expensive and get you caught in a cycle of debt. Before you borrow, consider the alternatives to a payday loan. When you’ve exhausted those options and believe a payday loan is your best bet, follow these steps to ensure you get a good deal.
Step 2: Understand your state laws.
Every state has different payday loan laws. Some have banned them entirely, while others place restrictions on lenders to help borrowers avoid high interest rates.
Research the laws of your state to learn more about what a lender can charge, how much you can borrow and what the turnaround will look like. This will help you spot any discrepancies between government regulations and your lender, helping you to avoid a scam and find a legit payday loan.
Step 3: Choose the right type of loan.
If you need to cover an emergency expense under $500, then a payday loan may be appropriate. Otherwise, you should look at your other short-term loan options.
- Payday loans. Payday loans are typically between $100 and $500, though some lenders offer loans up to $1,000. These have a quick turnaround — generally between two and four weeks — and may have an APR well over 300%.
- Installment loans. Installment loans come in larger amounts than payday loans, sometimes up to $5,000. You repay your loan in installments over six to 18 months. While the APR is typically lower than a payday loan, it can cost more over all — the longer your loan term, the more you’ll pay in interest.
- Auto title loans. Auto title loans use your car’s title as collateral. This results in larger loan amounts and a lower APR, but you risk losing your car if you default. And because terms are similar to payday loans, it can be difficult to repay without extending your term and paying more in fees.
Step 4: Compare lenders.
Not all payday loans were created equal. Different terms, rates and loan amounts will affect the way your loan works. By shopping around, you can eliminate lenders that offer lower amounts than you need or don’t operate in your state. And once that’s done, you can compare multiple payday loan providers to find a lender that fits your needs.
Step 5: Check the lender’s requirements.
Once you’ve found a lender, check its requirements before submitting an application. While eligibility criteria vary by lender, most ask that you meet the following requirements at a minimum:
- Proof of income, such as a pay stub or benefits letter
- Valid bank account
- Government-issued ID
- Social Security number
- Age of majority in your state
- US citizen or permanent resident
How to apply for a payday loan in 4 steps
A payday loan application shouldn’t take more than 10 minutes to complete, but you’ll want to make sure all the information you submit is accurate to increase your chances of approval.
Step 1: Gather your personal information.
When you apply, have information about yourself, your employer and your finances ready. This will help make the application process quick, and you’re less likely to submit incorrect information — saving you from rejection.
Step 2: Go to the lender’s website or visit a storefront.
Most lenders have online applications you can fill out on their websites. But if you aren’t comfortable submitting your information online — or need your funds the same day — then visiting a storefront might be the way to go.
Step 3: Complete the application.
Completing a payday loan application should only take a few minutes if you have the information you need on hand. Lenders typically ask for your personal details — including your Social Security number and bank account numbers. Once you submit your application, it may take a few minutes to receive an answer.
Step 4: Review your loan agreement and sign it.
If you’ve been approved, your lender will supply you with a loan agreement. This should include a clear warning on the cost of short-term loans as well as your loan term, APR and the fees you’ll have to pay. Read this carefully and note the full cost of your loan before you sign the contract. If you think the repayments will be more than you can afford, you’re under no obligation to accept the loan agreement.
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What happens after I apply for a payday loan?
Most lenders will notify you of a decision a few minutes after you submit your application. If you’re applying online, lenders can typically deposit the funds into your bank account within one to two business days. If you apply in store, you may be able to receive your funds before you leave via cash or check.
When it comes time to repay, your lender will deduct the principal amount and any fees you owe from your bank account — or cash the check you left. Make sure you have enough money in your bank account on your due date. Otherwise, you could face steep nonsufficient funds (NSF) fees and overdraft fees from your bank.
Reasons why you might have been rejected
While your lender should provide a reason you weren’t approved for a payday loan, these are four of the most likely reasons:
- You aren’t employed or your income is too low.
- You already have a payday loan or recently borrowed one.
- You have too many current debts.
- You had errors on your application.
4 alternatives to taking out a payday loan
A payday loan can be an expensive way to get emergency financing. Consider these payday loan alternatives before you borrow:
- State or federal aid. If you find yourself in need of consistent financial assistance, you might want to look into state or federal programs. Medicaid, housing assistance and other aid could help reduce your bills so you can avoid short-term loans.
- Pay advance apps. A pay advance app lets you borrow against your upcoming paycheck. It’s not always the cheapest solution, but you may not pay as much as you would with a traditional payday loan.
- Payday alternative loans (PALs). Many federal credit unions offer payday alternative loans, which allow you to borrow up to $1,000 with APRs capped at 28%.
- Friends and family. If you’re in a financial pinch, your friends and family may be willing to help. And it doesn’t necessarily have to be a loan — giving you a ride while your car is in the shop or babysitting could help take the stress off your budget.
Bottom line
A payday loan is best saved as a last resort when you’re facing an emergency financial situation. If you’ve weighed the alternatives and believe a payday loan is right for you, you can compare your short-term loan options to find the best deal available to you.
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