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Payday loans are used to cover unexpected costs when you cannot make it until the next payday. They are not designed for frivolous or unnecessary spending and should only be used if you need urgent access to funds.

 

What Is a Payday Loan?

A payday loan is a type of loan which is designed to last you only until the upcoming payday. This means that you can only apply for what you should receive in the upcoming weeks, whether it is from employment or an alternative form of income.

A payday loan is only supposed to be used in emergency circumstances and is designed for those who live on a month to month basis and have no access to savings. Payday loans usually range between $300 and $1000, although some lenders will offer more funding if it is necessary. This type of loan typically has a high interest rate and therefore should only be used as a last resort in the short term.

 

What Are Payday Loans Used For?

Payday loans are used to finance emergencies. They should be used to pay for things such as:

  • Emergency expenses
  • Paying rent
  • Funerals
  • To give money to family or friends
  • Household repairs
  • Plumbing problems
  • Medical bills
  • Dental fees
  • Vet bills

 

 

Why Should a Payday Loan Be Used?

Payday loans are designed to give borrowers access to instant funding if they do not have enough money to last until their upcoming payday. Payday loans should be used in times of urgency, for example to cover emergency medical bills, finance funerals, fix broken down cars or repair boilers.

This type of loan should not be used for any unnecessary spending and should not be used to pay off alternative debts.

 

Payday Loan

 

When Does A Payday Loan Need To Be Repaid?

If you take out a payday loan, you are expected to repay it in line with your upcoming payday. When you receive your monthly income, you will be required to repay the loan in full alongside the fee for borrowing the money.

If the loan is not repaid in line with payday, the payment will roll over into the next month with additional fees for late repayment. This means that a payday loan is not supposed to last you more than four weeks, when it should be paid off with your monthly income.

 

How To Apply For a Payday Loan

In order to apply for a payday loan, you will only need a valid ID, bank account and verifiable source of income.

The lender will be required to verify the income in order to approve a loan. If there is no evidence that you will receive income within the coming weeks, the lender will not be able to provide any access to funding.

The lender will also need to ensure you have a valid bank account under your name in which they can deposit the funds, and you will also be required to be over the age of 18.

 

How Much Can Be Borrowed?

A payday loan is usually for an amount between $300 and $1000, however this may vary. The lender should take into account your income alongside whether they believe you will be able to repay the amount borrowed.

Many states across the US also have a cap in place to limit how much can be borrowed, and how long for. This is to reduce the chances of people amounting excessive debt after continuously allowing the loan to roll over each month without making repayments.

See how much can be borrowed from a payday loan in many US states below:

State Max Amount Max Loan Term
Max Interest Rate*
Alabama $500 10-31 days 456%
Alaska $500 14 days 435%
California $300 31 days 460%
Colorado $500 6 months 36%
Delaware $1,000 60 days 391%
Florida $500 31 days 304%
Hawaii $600 32 days 460%
Idaho $1,000 32 days 652%
Illinois $1,000 120 days 36%
Indiana $550 14 days 382%
Iowa $500 31 days 433%
Kansas $500 30 days 391%
Kentucky $500 60 days 469%
Louisiana $350 30 days 478%
Michigan $600 31 days 370%
Minnesota $350 30 days 390%
Mississippi $500 30 days 521%
Missouri $500 31 days 527%
Montana $300 31 days 36%
Nebraska $500 34 days 36%
Nevada 25% of gross monthly income 35 days 652%
New Hampshire $500 30 days 36%
North Dakota $600 60 days 520%
Ohio $1,000 91 days 138%
Oklahoma $500 45 days 207%
Oregon $50,000 60 days 156%
Rhode Island $500 13 days 261%
South Carolina $550 31 days 391%
South Dakota $500 31 days 36%
Tennessee $500 31 days 460%
Texas $200 6 months 664%
Washington $700 45 days 390%

Source: NCSL

*Some rates are subject to change or will vary based on loan amounts.

As payday loans can also be deemed as potentially high risk, some states do not permit payday lending whatsoever. These states include New Mexico, North Carolina, Georgia, Arkansas, Arizona and Washington DC.

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