Payday Loans

Quick Summary

A payday loan is a loan based on – and paid from – a source of income. It can also be called a cash advance or a short term loan (although those are technically different terms). "What's the point of getting a loan based on my income, when it's low income that I'm struggling with?" you may be wondering. But the key to payday loans is that they are based on future income: Lenders take a look at your financial situation, and what income you ]can expect in the future (yes, typically on your payday, if you have one), and then offer a loan that reflects these numbers.

For this reason, these loans are typically used to help people and businesses stay afloat if their cash runs out but it's still going to be a while before they receive new income. It's not designed to be a long-term source of capital, but rather a short term solution to be used sparingly when necessary. A common example is a sudden emergency – say, a medical need or broken appliance – that requires a lot of cash upfront to deal with, leaving your account short when it comes to buying necessities or paying for necessary services. A payday loan can bridge that important gap until your next cash infusion.

The amount of a payday loan can vary depending on your situation. One of the most important factors is how large your expected paycheck will be. Since your upcoming paycheck is typically used to pay off the loan, lenders will not want to exceed that amount – and will want to leave room for interest payments as well.