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:
To give money to family or friends
- 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.
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*
|Nevada||25% of gross monthly income||35 days||652%|
|New Hampshire||$500||30 days||36%|
|North Dakota||$600||60 days||520%|
|Rhode Island||$500||13 days||261%|
|South Carolina||$550||31 days||391%|
|South Dakota||$500||31 days||36%|
*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.