Put simply, a payday loan
is a short-term personal loan
. A payday loan must be paid back, usually on or before your next payday. Payday loans can be obtained through different means, including storefront lenders as well as online applications. Generally speaking, borrowers of online payday loans are people who are in need of quick cash, so the entire application-to-approval process only takes a few short minutes.
Most payday lenders will take a look at your income in order to determine your ability to repay the requested loan, while still respecting your ongoing financial responsibilities. A potential lender will also verify your bank chequing account.
Once your loan is approved by your lender, funds can be deposited into your verified bank account. In most, if not all cases, your lender will request a post-dated cheque in the amount of the loan payment in full, plus interest and any other additional fees. This payment is deducted from your verified bank account.
You may be wondering why the post-dated cheque is mandatory and the answer is quite simple: the cheque provides the lender with assurance that they will be reimbursed by the agreed upon date. This arrangement is necessary because, unlike tradition financial facilities or banking institutions, a hard credit check is not performed.
Most lenders also request that your paycheque be automatically deposited into the bank account you’re having verified. The reason for this is to avoid having the post-dated cheque bounce when the payment goes through on your next payday. This is why they are called “payday loans.”