To get a payday loan, you need a valid ID, proof of income, and an active bank account. You can apply online or at a storefront lender, and if approved, you’ll typically receive funds the same day or within one business day. Before you apply, though, you should know that payday loans are among the most expensive ways to borrow money, and they’re not available in every state.
What You Need to Apply
Payday loan requirements are minimal compared to most other types of credit. Lenders don’t typically run a traditional credit check, which is one reason people turn to them when other options aren’t available. According to the Consumer Financial Protection Bureau, you generally need three things: an active bank account (checking, credit union, or prepaid card account), proof of income from a job or other source, and a valid photo ID showing you’re at least 18 years old.
Some lenders ask for additional details like your Social Security number, employer contact information, or recent bank statements. Online lenders may require your bank routing and account numbers upfront so they can deposit funds electronically and withdraw repayment on the due date.
Check Whether Payday Loans Are Legal in Your State
Payday lending is banned outright in several states, and others cap interest rates low enough that traditional payday lenders don’t operate there. If you’re in a state that prohibits or heavily restricts payday lending, you won’t find a licensed storefront or online lender willing to issue you one legally.
A number of other states allow payday loans but cap the annual percentage rate at 36%, which is far below the rates charged in states with fewer restrictions. In those states, the loans that are available look quite different from the high-cost, two-week loans most people associate with the term “payday loan.” If you’re unsure about your state’s rules, your state’s financial regulator or attorney general’s office will have current information.
The Application Process
You have two options: apply in person at a payday lending storefront or apply online. Storefronts are often located in strip malls alongside check-cashing and money-transfer services. Online applications are straightforward and usually take just a few minutes to fill out.
For an in-person application, you’ll hand over your ID and proof of income, and the lender will verify your bank account. If approved, you may walk out with cash or a check. For online applications, you enter your personal and banking details, and funds are deposited into your bank account, sometimes within hours but more commonly by the next business day.
As part of the process, you’ll either write a postdated check for the loan amount plus the finance charge or authorize the lender to electronically withdraw the full repayment from your bank account on the due date. That due date is usually your next payday, typically 14 days out.
What Payday Loans Cost
Payday lenders charge a flat finance charge per $100 borrowed rather than a monthly interest rate. This charge ranges from $10 to $30 per $100 depending on state law, with $15 per $100 being the most common. That means borrowing $500 would cost you $75 in fees on a typical two-week loan.
That $15 per $100 fee sounds manageable until you convert it to an annual percentage rate (APR), which is how the cost of all other loans is measured. A $15 charge on a $100 two-week loan works out to nearly 400% APR. For comparison, a high-interest credit card charges around 25% to 30% APR, and even the most expensive personal loans rarely exceed 36%.
The real cost often grows beyond that initial fee. If you can’t repay the full amount on your due date, many lenders let you “roll over” the loan, meaning you pay another finance charge to extend it for another two weeks. A borrower who rolls over a $500 loan three times would pay $300 in fees alone, more than half the original loan amount, while still owing the full $500.
How Repayment Works
Payday loans are due in a single lump sum on your next payday. There are no monthly installments. On the due date, the lender either cashes the postdated check you wrote or pulls the full amount (loan plus fees) directly from your bank account.
This is where many borrowers run into trouble. If the withdrawal hits your account and there isn’t enough money to cover it, you could face insufficient funds fees from your bank on top of whatever late fees or rollover charges the lender imposes. If the lender attempts multiple withdrawals, each failed attempt can trigger another bank fee.
Lower-Cost Alternatives Worth Considering
Before committing to a payday loan, a few other options may cover the same short-term cash need at a fraction of the cost.
- Payday Alternative Loans (PALs): Federal credit unions offer these small loans specifically designed as an alternative to payday lending. You can borrow $200 to $1,000, repay over one to six months in installments instead of a lump sum, and the interest rate is capped at 28% APR. The application fee can’t exceed $20. You need to have been a credit union member for at least one month to qualify.
- Credit card cash advance: If you have a credit card with available credit, a cash advance typically costs 25% to 30% APR plus a small upfront fee. That’s expensive by credit card standards but dramatically cheaper than a payday loan.
- Payment plans with your creditor: If the payday loan is meant to cover a specific bill, calling that creditor directly to ask about a payment extension or hardship plan can sometimes buy you time at no extra cost.
- Employer paycheck advances: Some employers offer early access to wages you’ve already earned, either directly or through apps they partner with. Fees, if any, are typically a few dollars per transaction.
If you’ve already decided a payday loan is your only option, borrow the smallest amount you can and make sure you’ll be able to repay the full balance plus fees on the due date. Rolling the loan over even once doubles the cost of borrowing.