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Ethiopian Economics Association

Ethiopian Economics Association

How Online Payday Loans Work

Online Payday Loans

Everybody has heard about payday lenders offering loan options for people who need money urgently. An increasing number of businesses provide lending services, and a growing number of customers borrow money from them. How does a payday loan online work, though?

A payday cash advance is the preferred loan product for borrowers who live paycheck to paycheck. A staggering number of American citizens fall into this category. When facing financial emergencies, most applicants are eligible for online loans and get fast cash. A borrower will need to be a US citizen or have permanent resident status, be at least 18, have an active bank account, and have a steady income source. During the application process, a payday lender will ask for their customers’ contact information, complete address, as well as proof of income. Financial providers may need additional confirmations along the way.

There are two ways an applicant can submit a loan request: through a direct lender or via a lending network. In the first case, they only reach one business; in the second case, their application goes to dozens of loan providers. Aggregator websites often provide their services for a charge, which borrowers pay additionally to the loan cost.

If a lender examines the payday loan application and decides to offer it, they send the applicant an offer. The details in the contract include the fees, interest rates, the total amount to repay, and the terms. When speaking about cash advances, a borrower typically has until their next payday to pay off their debt. Payday installment loans have longer terms spanning over several months. In that case, the consumer will pay off their debt in fixed monthly installments. Once the customer accepts the loan by signing the contract, they receive their funds. Borrowers can usually access the money deposited in their bank accounts in one business day or so. Afterward, the loan has to be repaid according to the terms in the contract.

If a borrower does not fulfill their financial obligations within the agreed-upon term, a payday lending business will often add extra charges for the delay or rollovers. A contract must stipulate all the costs, and state authorities may regulate the maximum loan amount. Certain US states do not permit payday lending, while others may cap amounts and interest on consumer loans.