How Does A Payday Loan Work? 6 Frequently-Asked Questions

payday loan

You write a post-dated personal check payable to the payday loan lender, or you authorize the lender to withdraw money directly from your bank account on the date of the check or authorization (we say “authorization” for short). Usually this is on your next payday. 

When the payday loan is due, you either give the lender cash in exchange for your post-dated check or let the lender deposit your check. If you authorized the lender to withdraw the money from your account, the lender will do so on the due date.

Should I take out a payday loan or not?

You should look for other options (see below, “What other options do I have…”). Payday loans are very expensive. They are difficult to afford on a tight budget. You can get stuck in a cycle of debt where you use more of them to pay off another. 

Am I eligible for a payday loan?

Depends. Under state law, you are not eligible if you are in any of the following situations:

  • You currently have at least one payday loan outstanding for a total of $ 700 or equal to 30% of your gross monthly income, whichever is less. 
  • You currently have a repayment plan to finish paying. 
  • You have had eight loans in the last 12 months.
  • You are behind on another payday loan.

How does the lender decide if I am eligible?

The lender has to review a statewide payday loan database to see if you have any other payday loans or payday loan debts as discussed above. You give the lender the following information:

  • Your Social Security number (or some other identification number if you don’t have a Social Security number).
  • Information about your gross monthly income.

The lender enters your information into the statewide database to see if you are eligible for a payday loan and, if so, to see how much they can loan you. 

How much is the most I can borrow?

You cannot borrow more than $ 700 or 30% of your gross monthly income, whichever is less, at any one time. 

They told me I can’t get a payday loan. What I can do? I really need one.

If the database says you are not eligible, the lender will give you a toll-free number to call and request more information.   

Are there other surcharges?

If the loan lender gives you your loan with a check, they cannot charge you to cash your own check.

I was out of money. I still have bills to pay. What other options do I have to avoid having to take out a payday loan?

  • Try to negotiate a payment plan with your creditors. Utility companies, credit card companies, and landlords often give more time to pay. The late fees could be less than the cost of one loan.
  • Borrow from friends or family .
  • Try to enlist the help of religious institutions or social service agencies. Contact the Washington State Department of Health and Human Services (DSHS). You may be eligible for an emergency assistance program.
  • Compare. Banks, credit unions, and finance companies offer alternatives to payday loans that include small consumer loans.
  • Check with your employer. You may have a program that allows salary advances. 
  • Contact a credit counselor. It can help you get out of debt and avoid a resorting to a payday loan. Your bank or credit union may offer credit counseling.

Does the lender have to tell me how much my loan is going to cost? 

Yes it is . By law, the lender must tell you the terms of the loan, including the amount of surcharges and fees and the APR. 

Many online lenders don’t provide this information until after you click “yes” to take out the loan. This is illegal. It could make the loan uncollectible.