Payday Loans and How They Work


Payday loans from PaydayChampion are short-term financial advances secured by the borrower’s check or electronic access to the borrower’s bank account. After writing a personal check for the amount borrowed plus the financing fee, borrowers receive cash. 

In some situations, borrowers may give up electronic access to their bank accounts to accept and repay payday loans.

The lenders hold the checks until the borrower’s next payday, when you must pay the loan and financing charge in full. Borrowers can pay off a loan by cashing the check, allowing the check to be deposited at the bank, or just paying the financing fee to extend the loan for another pay cycle. 

Some payday lenders also provide longer-term payday installment loans, requiring the borrower’s permission to take numerous installments from their bank account electronically, typically due on each pay date. Payday loans are available in amounts ranging from $100 to $1,000, depending on state laws. 

The typical loan length is two weeks. The average annual percentage rate (APR) on loans is 400 percent or higher. For a $100 loan, the financing fee ranges from $15 to $30. These finance costs result in interest rates ranging from 390 to 780 percent APR for two-week loans. APRs on shorter-term loans are significantly higher. Rates are higher in states where the maximum cost is not capped.

Payday Lending’s Legal Status

In thirty-two states, high-cost payday lending is permitted by state legislation or regulations. With acceptable minor loan rate restrictions or other prohibitions, fifteen states and the District of Columbia protect their borrowers against high-cost payday lending. 

Three states set lower rate caps or longer durations for slightly less expensive loans. The state licensing rules and rate caps in the state where the borrower gets the loan apply to online payday lenders.

How much can I get a payday loan for?

The amount you can borrow is determined by your state’s legislation and your financial situation. The majority of states that allow payday loans have a maximum of $300 to $1,000. Pay attention to the laws governing payday lending in your state.

This does not imply that you will be accepted for the maximum amount permitted by law. When determining how much you can borrow, a payday lender may consider your salary. On the other hand, other payday lenders may not assess your ability to repay or your other responsibilities, putting you at risk of financial overextension.

What if I can’t pay back a payday loan?

Depending on the lender and the state you live in, you may be charged a late fee or a nonsufficient fund fee. You may be able to extend the due date with a rollover, but this typically comes with a cost. Failed attempts to obtain payment can result in bank fees being levied against you.

The lender may forward your loan to a collections agency if the lender cannot recover the cash.

Alternatives to payday loans

Peer-to-Peer Lending

P2P is a type of lending where people lend to each other. If you’re still having trouble finding a lender, look into peer-to-peer lending platforms online. The interest rates could be close to 35 percent, more than the 6 percent rate offered to those with excellent credit, but it’s still a lot better than the 391 percent provided by a payday lender.

Credit unions and community banks:

Local banks and credit unions can now issue smaller loans with more flexible payback conditions than large regional or national banks. Call or come in to compare interest rates, which might be as low as 10% -12% compared to 400%-500% on payday loans.

Charities and churches in the area:

If you’ve reached a snag, there are many organizations and churches eager to help you out without charge. When you need a few hundred dollars to get through a bad patch, organizations like United Way, Salvation Army, and church-sponsored programs like the St. Vincent de Paul Society regularly step in.

Debt Consolidation:

If you’re constantly out of money due to unsecured debt (credit cards, hospital bills, personal loans), you may want to consider debt settlement as a debt-relief alternative. Debt settlement entails negotiating a lower payment than you owe, but it leaves a significant mark on your credit report and substantially impacts your credit score.

Borrow from friends or family:

Borrowing money from friends or relatives is quick and frequently the cheapest option to get out of a jam. You’d expect to pay a much lower interest rate and a more extended repayment period than two weeks, but make sure this business arrangement benefits both parties. Make a loan agreement that spells out the terms of the loan. And it would help if you stuck to it.

Advance on your paycheck:

Many employers provide employees with the opportunity to receive money earned before their next paycheck is due. If an employee has worked seven days and the next planned paycheck isn’t for another five days, the employer can pay the employee for the seven days. It isn’t a loan at all. It will be deducted from your next paycheck.


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