Payday Loan Requirements: What Do You Need to Qualify?
Posted on December 19, 2022 in Loans
A consistent source of income, a checking account, and valid identification are the basic requirements for a payday loan. Borrowers must also be at least 18 years old, and while an application for a payday loan can be approved in minutes, the loans have extremely high interest rates, trapping many people in a cycle of debt. As a result, if you need cash in the short term, we recommend considering payday loan alternatives such as cash advance apps.
Table of contents
- What Are Payday Loans?
- What Do You Need To Qualify For Payday Loans?
- How Do You Apply For a Payday Loan if You Meet All Requirements?
- Alternatives To Payday Loans
- Conclusion On What’s Needed For A Payday Loan
We always find ourselves in emergencies where we must dish out a substantial amount of cash to settle major emergency expenses. These could be medical emergencies, auto repairs, or even house repair expenses.
If you find yourself in such a situation and are in a cash fix, taking a loan is the first option. But conventional loans may take forever to be approved, and emergencies are simply emergencies, they need to be handled in the least possible time.
Most Americans turn to payday loans for instant cash. As of 2022, 12 million Americans took payday loans, highlighting their importance in covering you during such times. So how do you qualify for payday loans?
This article will discuss what you need for a payday loan (requirements), but first;
What Are Payday Loans?
They are a form of unsecured personal loans, and usually don’t require a credit check, meaning that you aren’t required to provide any collateral to qualify for them. That’s why 11% of American households with an income of $15,000 to $25,000 find them attractive, and maybe you do too.
Since the risk level is low on your side, lenders take this to their advantage and charge high-interest rates. These interest rates can be an APR of 400% to 700%, with some lenders charging a flat rate of $15 for every $100 borrowed.
If you couple the high-interest rates with the fact that you must pay back your loan in your next paycheck, you’ll agree that finding yourself in a never-ending debt cycle is possible.
Continue reading to see the requirements to qualify for a payday loan.
What Do You Need To Qualify For Payday Loans?
The three basic payday loan requirements are a consistent source of income, a checking account, and proof of being 18 years old. The maximum principal amount you can qualify for as a payday loan is $1,000.
Additionally, according to the National Conference of State Legislatures, “A payday lender shall not make a payday loan that exceeds 25% of the gross monthly income of the borrower when the loan is made.”
When applying for your payday loan, go through the terms and conditions of the loan and keep an eye out for any hidden charges. Payday loans are fixed-interest loans, so you can determine the amount you will pay back.
If you cannot settle your payday loan on the due date, you can ask for an extension of the repayment period. This will result in the rolling over of your loan with a new principal amount which includes your previous interest. Rolling over your loan can easily end up in a continuous cycle of bad debt.
The payday loan requirements that you need to meet to qualify for a loan include the following;
You must be 18+ years to qualify for a payday loan. When you apply for the loan, you’ll need to present a valid identification card to verify your age. You’re most likely to qualify for a payday loan if you’re above 22 years because of your past credit record and expenditure in paying for mortgages.
2. Income status
To qualify for a payday loan, you must have an income. Lenders will ask you for your pay stubs to verify that you have a steady source of income.
3. An active checking account
The final requirement for a payday loan is ensuring that you have an active checking account. When you apply for a payday loan, you’ll need a checking account where lenders will deposit your loan once approved. In addition, you’ll make your loan repayments from this bank account.
You must provide a post-dated check to the lender to repay your loan. The lender can withdraw the bill from your checking account on the predetermined due date. You can also opt to give the lender digital access to your account to deduct the total loan amount electronically.
How Do You Apply For a Payday Loan if You Meet All Requirements?
Payday loans are easy to apply with a fast approval rate of around 15 minutes. You can apply for payday loans by visiting the lender’s offices or online through their apps. This makes them convenient for anybody to apply with minimal effort, as payday loan requirements aren’t very demanding.
Are Payday Loans Legal In My State?
All payday loan lenders must comply with the federal government’s Consumer Financial Protection Bureau (CFPB) rules. However, their regulations vary from state to state, with some states restricting the provision of payday loans.
All states that allow the provision of payday loans have regulations that protect consumers from high-interest rates. Hawaii and Colorado offer the lowest APR of 144% and 114%, respectively, while Idaho and Nevada offer the highest APR of 652% and 602%, respectively.
Are Tribal Lenders The Same As Payday Lenders?
No! Tribal lenders are not the same as payday lenders. While they offer the same services as payday lenders, tribal lenders differ slightly in how they operate, and therefore may ask for different loan requirements.
The tribal lenders claim to operate outside Native American reservations, yet they’re online loans. As such, they use aggressive and predatory tactics on your loan approval and repayment process since they’re outside the jurisdiction of state and federal laws. One predatory tactic they employ is offering a high APR.
What Are The Risks Of Defaulting On Your Payday Loan?
Payday loans last a maximum of 31 days. You default on your loan when you cannot repay it during this period. Failure to make repayments can result in the following;
- Debt collection– if you cannot complete your loan after 60 days, lenders will pass you on to third-party debt collection agencies. These agencies will blow up your phone with constant reminders until you repay your loan.
- A poor credit rating– your credit score will drop once you start dealing with collection agencies. This will affect your chances of getting approved for subsequent loans. A default on your loan will stay in your report for seven to ten years.
- Extra fees and interests– if you have insufficient funds to cover your loan in your checking account, you’ll be subjected to nonsufficient funds (NSF) fees, while a rollover will result in high interest.
- Court hearings– debt collectors will take you to court and sue you to cover the loan. These court hearings can lead to the seizing of your property.
Alternatives To Payday Loans
You don’t have to conform to the norm of getting a payday loan for a quick cash fix. Even if you qualify for a payday loan, you can consider the following alternatives to payday loans;
- Go for credit counseling
- Have a side gig
- Look for peer-to-peer loans
- Apply for a credit cash advance
- Borrow from friends and family
- Apply for a secured personal loan
Conclusion On What’s Needed For A Payday Loan
With one misstep, personal financing can turn from the much-needed quick cash relief to a never-ending cycle of bad debt. It’s advisable to learn about payday loans and the risks involved when you default on them and reconsider your choice of personal financing. There are always better alternatives to payday loans that can fix your immediate cash needs.
Related blog posts
Need expert financial advice?
Let TurboFinance connect you with the best consulting services and resources to help you take control of your finances and find a path to build wealth.Get A Free Consultation Today!