Payday loans are short-term emergency loans people take to cover urgent cash needs until their next paycheck. For example, to cover an emergency auto repair or fix the air conditioner. The requirements are relatively lax, but there are still a few requirements.
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Key takeaways: Payday loan requirements
Are you eligible for a payday loan? Here’s what you need to know.
- You must be age 18 with a valid ID, proof of income and an active checking account
- Active-duty military service members may not be eligible
- Some payday lenders require a Social Security number
- It will be tough to get another payday loan if you already have one unpaid payday loan
READ MORE: How to pay off multiple payday loans
Who qualifies for payday loans?
Unlike traditional financial institutions, payday lenders will usually approve people for loans without a credit check, so people with poor credit scores who won’t qualify for most traditional loans will still be approved for payday loans.
A payday loan application can be approved within minutes, but the ramifications of the loan can last for years. One in five payday loan borrowers end up defaulting on their loans.
Close to 12 million Americans fall victim to this predatory loan system each year, which is considered so dangerous that the loans are illegal in many states.
Most of the victims are financially vulnerable people who live paycheck to paycheck and have no savings account or credit card.
READ MORE: Payday loan pros and cons
The underwriting requirements are very basic. There is usually no credit check, so your credit score doesn’t matter. You don’t even technically need to be employed, as long as you have a steady income like Social Security.
All you need is:
- A bank account
- Pay stubs (or other proof of income)
- Valid identification
- Be age 18 or up
Some — but not all — payday lenders may also require a Social Security number.
In other words, almost anyone who has a job and is older than 18 can qualify for a payday loan. Many payday loan applications are approved within minutes.
The reason you need a bank account? Payday lenders will set up your payment to automatically debit your loan balance on the due date. If the money isn’t there, it can cause expensive overdrafts. Repayment in two weeks is very difficult. Many borrowers have to get another payday loan (called a rollover) and end up trapped in a cycle of debt.
Pro tip: Beware of any lender that issues title loans and offers check cashing services. Even though it may not refer to itself as a payday lender, it could be issuing payday loans in disguise.
READ MORE: How to get out of payday loan debt
Who can’t get a payday loan?
In some cases, payday lenders deny loan applications. This usually happens when the applicants:
- Aren’t able to show proof of income
- Make less money than the required minimum
- Don’t have a steady income (like independent contractors or temporary workers)
- Don’t have a checking account
- Already have past-due payday loans
- Don’t have U.S. citizenship
- Are younger than 18 (or, in some cases, 21)
Active-duty military service members and their dependents may also have difficulties getting approved for a payday loan. That’s because the Military Lending Act intended to protect military members from high-interest-rate loans – like payday and title loans. It caps interest rates at 36%. Because of this, some lenders won’t issue loans to military servicemembers at all.
READ MORE: Payday loan interest rates
Pro tip: It is important to keep in mind that payday lenders are looking out for themselves. Most denied loan applications occur because the lenders aren’t sure they will get paid on time. For example, people without an active checking account can’t write a post-dated check for the loan amount plus fee, which is an essential requirement with most lenders, or set up their account to be automatically debited at payday.
The Consumer Financial Protection Bureau (CFPB) enforces some consumer protections against predatory lenders. You can learn more about how to protect yourself at cfpb.gov.
To learn more about the dangers of payday lending, check out this video:
Other types of loans to consider instead
- Cash advance apps
- Installment loans
- Personal loans
- Payday Alternative Loans (these are only available through credit unions)
The bottom line
Even if you meet the minimum payday loan requirements, there are still better ways to borrow money. Don’t turn to a payday lender unless you’re completely out of other options.
The California Deferred Deposit Transaction Law, also known as the Payday Loan Law, is a state law in California that regulates and governs payday lending activities. It establishes the rules and requirements that lenders must follow when providing payday loans to consumers in the state. It caps loans at $300, caps interest rates at a maximum of $15 for each $100 borrowed, sets a minimum repayment term of 31 days and requires payday lenders to be licensed by the state. Learn more about payday loan laws in California.
Payday loans are currently illegal in Arizona, Arkansas, Colorado, Connecticut, Georgia, Maryland, Massachusetts, Montana, Nebraska, New Hampshire, New Jersey, New Mexico, New York, North Carolina, Pennsylvania, South Dakota, Vermont, West Virginia and the District of Columbia.
Payday loans won’t help your credit score, but they may hurt it. Because payday lenders don’t report loans to the three major credit bureaus – Experian, Equifax and TransUnion, repaying a payday loan on time will not help your credit score. However, if you fail to repay your loan on the next payday, the late payment will be reported to the credit bureaus, hurting your credit score. If you default on the loan, the credit score impact will be even more severe.
Payday loans are technically legal in Ohio but are heavily regulated. The maximum loan amount is $1,000, the annual percentage rate is capped at 28% and the minimum loan term must be 91 days rather than the customary two weeks. Learn more about payday loan laws in Ohio.
Because of recent changes in federal law and some states that restrict payday loan fees for military service members and their dependents, some payday lenders may opt not to make loans to service members and their dependents.
Also, lenders are subject to the Military Lending Act (MLA) — a law intended to prevent lenders from gouging military personnel with exorbitant interest rates and fees that come with payday loans, tax refund anticipation loans, and car title loans.
Active-duty military members and military spouses are protected under this act which requires:
A 36% cap on interest rates. This cap is on interest rates on loans with terms under three months. While still high, a 36% interest rate is far more reasonable than the three-digit APRs that can come with some short-term loans.
No mandatory waivers of consumer protection laws. A lender can’t require you to submit to mandatory arbitration or ask you to give up your rights under state or federal laws, as they can with the public.
No mandatory allotments. A lender can’t make you agree to a voluntary military allotment — or automatic repayments from your paycheck — for loan approval.
No prepayment penalty. A lender can’t charge you a fee or other penalty if you find yourself able to pay back your loan before the end of your terms.