What are the main requirements to Qualify for a Payday Loan? Written by The Investopedia Team Investopedia logo Updated August 31, 2021 Reviewed by Charlene Rhinehart Payday loans, also known as cash advances are short-term, low-balance high-interest loans usually at high interest. They’re called that because of the tendency of the money to be borrowed on a post-dated check or account-withdrawal authorization that is effective on the payday that the borrower is due to receive. These loans are designed to be fast and usually easy to qualify for if the borrower has work. They are intended to help customers get cash quickly that will last until the next pay day that is why they’re referred to as “payday loan.” Payday loans can also be called cash advance loans and deferred deposits loans also known as post-dated cash loans or loans for advance check loans. Key Takeaways The main requirements for an payday loan are a source of income, a bank account, and valid identification. Borrowers must be at least 18 years old The application for a payday loan can be approved in a matter of minutes, however the loans come with extremely steep interest rates which put many people in a spiral of increasing debt. Recent CFPB rulemaking has eliminated one important feature of the 2017 payday loan rule and left in place another. 1:37 Click Play to Find Out More About Payday Loans Basic Requirements for Payday Loans According to the federal Consumer Financial Protection Bureau (CFPB) in order to be eligible for a loan that’s payday lenders need that borrowers: You must be at the least 18 years old. Maintain a checking account You must also have an active checking account. Make sure you have proof of your income , as well as a authentic identification. The loan is approved in just 15 minutes. In most situations the borrower pays checks for the loan amount plus a fee and the lender will hold it until the due date. The majority of payday loans are extended for only several weeks. When the loan is due it is either the borrower who pays back the loan or permits the lender to cash the postdated check or take the loan from the borrower’s account. Recent CFPB Rulemaking The CFPB issued an interim rule on July 7 and 7, 2020. The final rule eliminates an obligation in a rule issued in 2017 by the Obama administration rule mandating that payday lenders evaluate the creditworthiness of the person who is requesting the loan and maintains an Obama obligation that limits repeated attempts by payday lenders to get from a borrower’s account.1 2 Leading up to the July 7 regulation, the Trump administration issued guidelines in February 2019 to repeal the compulsory underwriting provisions in the 2017 rule, and to delay the September 19, 2019 effective date of the rule.3 followed by a June 6, 2019 final rule that delayed the August 2019 compliance date.4 The risks of payday loans Many borrowers find themselves in issues with their finances due to these types of loans because they’re not able to pay the balance when they first become due. Each time the person who is borrowing extends their loan in the future, additional fees are tacked on. Payday lenders charge fees as high as $30 to $10 for every $100 borrowed according to CFPB. A fee of $15 equates to around 400% annually. Payday loans are accessible to people with poor credit . They typically don’t require a credit assessment. There are 12 million Americans use payday loans each year, and the majority of them do not have access to an existing credit card or savings account, as per the Pew Charitable Trust. Payday loans can be risky, frequently leading the borrower to a worse financial straits down the way. They are banned in several states. Payday Loan Interest Rates Needs for loan repayments should not be the sole thing to consider when who are considering taking out a payday loan. In terms of annual percentage rates, it is not uncommon to see payday loans to exceed 500% or even 1,000%. Even though business models and regulations limit the amount and length of payday loans, these types of loans are still an expensive alternative and should be considered with care. Due to higher interest charges, payday loans are the most expensive means of borrowing money. Certain states have laws which regulate the amount payday lenders are allowed to lend and how much they can charge for loans however other states, such as New York, ban the practices of payday lending in totality. In those states in which the practice is not permitted, lenders typically circumvent the regulations by partnering with banks from other states. Payday Loan Amounts Qualifying loan amounts are determined by the borrower’s income and the payday lender’s income, however most states have laws establishing the maximum payday loan amounts. Some states even limit those who are borrowers able to hold multiple instalments of payday loans in an attempt to discourage consumers from borrowing large amounts of money at extremely steep interest. Loan amounts range between $50 and $1,000 dependent on the law of the state. 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