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What are the most basic requirements to be eligible for a payday Loan? From The Investopedia Team Investopedia logo Updated August 31 2021 The review was written by Charlene Rhinehart Payday loans which are also known as cash advances, are short-term, low balance, high-interest loans typically at interest rates of usury. These loans are named for an inclination for the funds to be repaid using an undated check or a withdrawal authorization which will be effective on the borrower’s upcoming payday. These loans are made to be easy and generally easy to qualify in the event that the applicant has a job. They’re designed to aid people get cash fast that will last until their next paycheck so the name “payday loan.” Payday loans can also be called cash advance loans as well as deferred deposit loans and post-dated cheque loans or the check-advance loans. Most important Takeaways The main requirements for an payday loan are a source of income, a check account, and proof of identity. Borrowers must be at least 18 years old. An application to get a payday loan can be approved within a matter of minutes. However, these loans are accompanied by extremely high interest rates that can trap many in a cycle of debt that is growing. Recent CFPB rules have eliminated a crucial provision of the original 2017 payday lending rule but left another in place. 1:37 Go to the YouTube video to learn all about Payday Loans Essential Requirements for Payday Loans According to the federal Consumer Financial Protection Bureau (CFPB) the requirements to qualify for a loan many payday lenders only require borrowers: You must be at the least 18 years old. You must have an active checking account Have an active checking account Present proof of your income and a proof of identity. The loan can be accepted in as little as 15 minutes. In the majority of cases, the borrower writes checks for the loan amount in addition to a lending fee and the lender keeps the check until the predetermined due date. Most payday loans are extended for just for a couple of weeks. When the loan comes due, the borrower either pays out the loan or allows the lender to cash the post-dated checks or else take a cash withdrawal from the account of the borrower. Recent CFPB Rulemaking The CFPB issued the final rule on July 7 2020, which removes an obligation in a rule issued in 2017 by the Obama administration rule mandating payday lenders check a borrower’s ability to repay the loan and also leaves in place an Obama rule that restricts repeated attempts by payday loan lenders to collect the bank account.1 2 Before the July 7 rule, the Trump administration issued draft rules on February 2019 to repeal the compulsory subwriting provision of the rule as well as to delay the August 19, 2019 implementation of the rule.3 This was followed by a June 6, 2019 final rule that delayed the compliance date for August 2019. date.4 The dangers of payday loan Many people get into financial difficulties due to these kinds of loans when they’re unable to pay the balance when they first become due. Every time a customer extends the loan, more fees are added to the loan. Payday lenders charge fees as high as $30 to $10 for each $100 borrowed, according to the CFPB. A 15-cent fee is equivalent to about 400% annually. Payday loans can be obtained by those with poor credit and do not require a credit score. More than 12 million Americans take advantage of payday loans each year, and the majority do not have access to a credit card or savings account, according to Pew Charitable Trust. Payday loans can be dangerous, often leading to worse financial straits down the path. They are illegal in many states. Payday Loan Interest Rates However, loan requirements shouldn’t be the sole thing to consider when thinking about the possibility of a payday loan. When it comes to annual percentage rates it is not unusual to see payday loans to exceed 500 percent, or even 1,000 percent. Although policies and models of business restrict the length and size of payday loans, these types of loans are still an expensive alternative and should be considered with care. Due to these high rate of interest payday loans are the most expensive way to get money. Certain states have laws restricting the amount payday lenders are allowed to offer and the amount they are allowed to charge for loans in other states. Some states, such as New York, ban the application of payday lending entirely. In states where payday lending is prohibited, lenders often get around the rules by partnering with banks in other states. Payments for payday loans Qualifying loan amounts are contingent upon the amount of income the borrower earns and the payday lender’s income, however many states have laws setting the maximum payday loan amounts. Certain states limit the capacity of borrowers to hold multiple ongoing payday loans in an attempt to stop consumers from borrowing large amounts at extremely steep interest. Loan amounts can range between $50 and $1,000 dependent on the law of the state. 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