Payday loans, also known as cash advances, are short-term, low-balance, high-interest loans. They are so named because of a tendency for funds to be borrowed by postdated check or withdrawal authorization from the account beginning on the borrower’s next payday. It is possible that, depending on your circumstances, you need a loan of this type, so in this article we will tell you what are the requirements for a payday loan.
These loans are designed to be quick and generally easy to get if the applicant has a job. They are intended to help consumers get quick cash in order to fund them until their next paycheck, hence the name “payday loan.”
These types of loans are also known as cash advance loans, deferred deposit loans, postdated check loans, or check advance loans.
- The basic requirements for a payday loan are a source of income, a checking account, and valid identification. Borrowers must be at least 18 years of age.
- An application for a payday loan can be approved in a matter of minutes, but the loans come with extremely high interest rates that trap many people in a spiral of mounting debt.
- The recent CFPB rulemaking removed a key provision from the original 2017 payday loan rule and left another in its place.
What are the requirements for a payday loan?
Below you will see what are the requirements for a payday loan sAccording to the government’s Consumer Financial Protection Bureau (CFPB). To qualify for a loan, Most payday lenders only require that borrowers:
- Are at least 18 years of age;
- Have an active checking account; Y
- Provide some proof of income as well as valid identification.
The loan can be approved in as little as 15 minutes. In most circumstances, the borrower writes a check for the amount of the loan plus a loan fee, and the lender holds the check until a predetermined due date.
Most payday loans are for just a few weeks. When the loan is due, the borrower repays the loan or allows the lender to cash the postdated check or make a withdrawal from the borrower’s account.
The recent regulation of the CFPB
The CFPB issued a rule on July 7, 2020, removing the requirement for a 2017 Obama administration rule which mandates that payday lenders evaluate a borrower’s ability to repay a loan and leaves in place an Obama requirement that limits repeated attempts by payday lenders to collect from a borrower’s bank account.
Prior to the July 7 rule, the Trump administration issued proposed rules in February 2019 to repeal the mandatory underwriting provision of the 2017 rule and delay enforcement of that rule on August 19, 2019, followed by a June 6, 2019 final rule delaying the August 2019 compliance date.
The risk of payday loans
Many borrowers have financial problems with these types of loans by not being able to pay them when due. Each time the borrower extends the term of the loan, more fees are added. Payday lenders charge a fee of $10 to $30 for every $100 borrowed, according to the CFPB. A $15 fee is calculated at 400% per annum.
Payday loans are affordable for consumers with poor credit and typically don’t require a credit check. About 12 million Americans use payday loans each year, and most of them don’t have access to a credit card or savings account. according to the Pew Charitable Trust.
Payday loans are risky, often leading to a much worse financial situation for the borrower in the future. They are banned in many states.
Payday Loan Interest Rates
Loan requirements shouldn’t be the only consideration for people considering a payday loan. In terms of annual percentage rate, it is not uncommon for payday loans to exceed 500% or even 1,000%. Although business models and regulations limit the size and duration of payday loans, these types of loans are still an expensive alternative and should be approached with care.
Due to high interest rates, payday loans are the most expensive way to borrow money. Some states have laws regulating how much lenders can lend and how much they can charge for loans, while other states, like New York, ban payday lending altogether. In states where this practice is prohibited, lenders often circumvent regulations by partnering with out-of-state banks.
Payday Loan Amounts
Qualifying loan amounts vary depending on the borrower’s income and the payday lender, although most states have laws setting maximum amounts. Some states even limit the ability of borrowers to have multiple loans outstanding, in an attempt to prevent consumers from borrowing large amounts at extremely high interest rates. Loan amounts can range from $50 to $1,000, depending on state law.