How Payday Loans Work

Payday loans are short term loans granted by a lender on their electronic access to the borrowers account, or on a check held intended for future deposit. A borrower writes a check equivalent to the amount they are borrowing adding interest. In case of an electronic transaction, a borrower will sign for electronic access to their personal account to either pay or receive payday loans.

All you need to qualify for a payday loan is an active bank account, identification and a verifiable source of income. Payday loan lenders do not perform credit checks or ask questions to determine whether you qualify for a loan. Due to their nature where they are determined by your ability to pick a loan and not to repay, they easily create a debt trap.

Payday loans are processed and issued in payday loan stores. They are also available in institutions that deal with check cashing, pawn, rent to own, or title loan providers. Unlike yesteryears, today's payday loans are processed through websites and mobile apps.

In the United States alone, at least 32 states have passed state laws and regulations that authorise the high cost payday lending. At least 15 states among them the district of Colombia have shielded their citizens against high cost pay day loans.

Instead, they have established caps on small loans, and prohibitions to hold too many loans at once, among other rules. In other states, the lenders are subjected to state licensing, and interest rate caps for where the loan is received.

This laws and regulations are meant to control the rate at which citizens get trapped in a debt cycle that never seems to end.

Payday loans are not evil. The only secret you have to master is managing them. Always pay on time and in full. Avoid having two loans at once, as this are traps into a debt cycle.