How It Works

A payday loan is designed to be an easy to access short term loan granted by a lender to a borrower and payable by the next payday. Legislations and processes regarding payday loans differ slightly among countries, jurisdictions and payday lenders.

The process is however basically the same. A borrower is given a loan by a payday lender who is expecting to be paid in full on the next payday. The loan helps the borrower access quick cash to solve their financial problems and the lender receives the agreed interest in addition to the full principal.

When the borrower contacts a payday lender for a short term loan, the lender will usually have to verify the borrower’s employment and income. This can be done by providing payment slips or stubs and bank statements. Different lenders have their own methods and underwriting criteria that they follow. Once satisfied, the lender providers the borrower with the requested loan amount, which will depend on the expected pay amount.

In some cases, the lender may request that the borrower issues a post dated check to cover the full amount of the loan plus interest. The lender can then cash out the check after the maturity date if the borrower does not come in person to redeem the loan. If the check fails to clear, the borrower will be charged a bounced check fee by the bank and would still have to repay the loan plus accruing interests.

Before you take out a Payday or Short Term loan, you need to ask yourself whether borrowing money is the right thing for you. If you can cut down on your spending or put off buying something until you’ve saved for it, do that. If you are borrowing money to make repayments on other loans and debts, you may be in a vicious circle and it might not be the best thing to do. If you think you need help with your debts, you can contact the Step Change Debt Charity service at who will provide free and impartial advice. Or you can visit My Debt Management Broker to see fee charging options for managing your debts.