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What are the essential requirements to be eligible for a payday Loan? By The Investopedia Team Investopedia logo Updated August 31, 2021 Review by Charlene Rhinehart Payday loans and also known as cash advances, are short-term, low-balance high-interest loans typically at interest rates of usury. They’re named so because of an expectation for the money to be obtained on an undated check or account withdrawal authorization that is effective on the borrower’s upcoming payday. These loans are created to be short and generally easy to get for , provided the applicant has a job. These loans are intended to assist individuals get a little cash to help them get their next paycheck that is why they’re referred to as «payday loan.» Payday loans are also called cash advance loans as well as deferred deposit loans, post-dated check loans or cash advance loans. Key Takeaways The basic requirements for an payday loan are a source of income, a bank account, and a valid ID. Borrowers must be at least 18 years old. In the application process for a payday loan can be approved in just a few minutes, but the loans are accompanied by extremely large interest rates that leave numerous people in a vicious cycle of mounting debt. Recent CFPB rules have eliminated a crucial section of the original payday lending law and put an additional provision in place. 1:37 Click Play to Find Out More About Payday Loans Essential Requirements for Payday Loans According to the government’s Consumer Financial Protection Bureau (CFPB) To be eligible for a loan generally, payday lenders are only requiring that the borrower: You must be at least 18 old. Maintain a checking account Also, Provide some proof of earnings and also a valid identification. The loan can be approved in less than 15 minutes. In most circumstances, the borrower writes a check for loan amount along with a fee, and the lender retains the check until a predetermined due date. Most payday loans are extended for only an amount of time. When the loan is due, the borrower either pays to pay off the loan or authorizes the lender to cash the post-dated cheque or otherwise make a withdrawal from the account of the borrower. Recent CFPB Rulemaking The CFPB issued a final rule , July 7 20th, 2020. The rule removes the requirements of a 2017 Obama administration rule requiring that payday lenders review the creditworthiness of the person who is requesting the loan but leaves in place an Obama requirement that limits repeated attempts by payday loan lenders to collect from a borrower’s bank account.1 2 Leading up to the July 7 ruling, the Trump administration released suggested rules back in February of 2019 which would repeal the obligatory underwriting provision of the 2017 rule, and to delay the date of the August 19th, 2019 implementation of the rule.3 It was followed by a July 6, 2019, final rule delaying the compliance date for August 2019. date.4 The Risk of Payday Loans Some borrowers end up in financial troubles with these kinds of loans when they can’t pay them back when they first come due. Every time the lender extends the loan further, additional charges are added. The payday lenders charge a fee of $10 to $30 for every $100 borrowed according to the CFPB. A $15 cost equates to 400% over the course of a year. Payday loans are available to individuals with poor credit and usually don’t require a credit verification. Some 12 million Americans have access to payday loans each year, and most of them don’t have access an existing credit card or savings account, according to the Pew Charitable Trust. Payday loans can be risky, leading to worse financial problems down the long run. They’re banned in a lot of states. Interest Rates on Payday Loans Needs for loan repayments should not be the sole thing to consider when looking to take out getting a payday loan. When it comes to annual percentage rates it is not uncommon for payday loans to exceed 500 percent, or even 1,000%. Even though legal and regulatory frameworks for businesses limit the amount and length of payday loans, these types of loans are still an expensive alternative that should be handled with caution. Because of excessive interest costs, payday loans are the most costly method of borrowing money. Some states have laws that govern the amount payday lenders are allowed to lend and the amount they can charge for loans in other states. Some states, like New York, ban the practice of payday loans completely. In states where the practice is prohibited, lenders often get around the rules by partnering with banks from other states. Amounts for Payday Loans The qualifying loan amounts are contingent upon what the borrower’s earnings are and also the payday lender’s requirements, though most states have laws establishing the maximum payday loan amounts. Certain states also limit borrowing by borrowers who have multiple active payday loans in an attempt in order to stop people from borrowing huge amounts with extremely excessive interest. The loan amounts vary from $50-$1,000, dependent on the law of the state. 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