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Payday Loans: A Good Source of Emergency Cash, or a Trick to Get Your Cash?

Payday loans have been under debate as to whether or not they are ethical loans to provide. In fact, some states outlaw the practice of giving these types of loans. But what exactly are they and why is there a split consensus about them?

How Payday Loans Work

Payday loans are popular because anyone with a job and a bank account can get one. To apply for this type of loan, all you need are the following:

* An application filled out

* Proof of identification

* Social security card

* Proof of address (electricity, gas, or phone bill)

* Copy of last 1-2 pay stubs

* Bank account statement

* Checks with your name and address printed on them (temporary checks don’t have this information printed on them and cannot be used)

The account number on your bank statement must correspond with the account number on the checks. Your address on your identification card does not necessarily have to be the same as the address on your utility bill or check; however the address on your bill and bank account must match and be current.

What An Application Entails

Applications for payday loans ask you how long you’ve been with your employer, their phone number and address, and a reference. It will also ask you for your bank account number, and any other assets you may have, such as a car or house. Most places that give payday loans ask for at least three references they can call if you default on payment.

Some check cashing places are stricter when it comes to payday loans than others. For instance, some will call your mobile phone while you are there to make sure the number is correct and works. They can even call your employer while you’re there to make sure you are currently employed. Sometimes they will call your bank to make sure your account is still open, but this is extremely rare.


If you have all of this documentation and provide honest answers, you will be approved for a loan. No credit check is needed. You will be asked to write a check made out to the check cashing place that is dated for your payday. The amount on the check will include interest, which is about 16% at most places. If you don’t come in to the check cashing place on your payday to pay back the loan, the check will automatically be cashed, and the money will be taken from your bank account.

Pros of Payday Loans

* No credit check required like some loans

* Easy to apply for (check cashing places are everywhere)

* A good short-term means of cash for emergencies

* If you can’t pay the loan back by your next payday, you can extend the loan by just paying the interest every 2 weeks

* Take out up to $600, depending on the state in which you apply for loan

Cons of Payday Loans

* Most states only let you borrow up to $300

* 16% interest rate is much higher than traditional loans

* Not a good source of a long-term loan (just to prolong paying back the full loan amount, you could have to pay $50 or more every two weeks)

The borrower should consider the interest rate charged on credits which should be reasonable. The legal compliance of the lender should also be considered to ensure that there is no exploitation.

The only reason why these loans are outlawed in some states is that people tend to borrow more than they can afford to pay back, placing them in a cycle of debt. In short, payday loans are a good source of cash only if you know you can afford to pay back the loan by your next pay day.

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