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Applying for a Payday Loan Online: Lender Checks and Data Risks

This guide presents selected U.S. government consumer education from CFPB. References to “we” or “us” in the source material refer to the issuing agency. Source dates and links appear below.

What should I consider if I'm thinking about getting a payday loan online?

Payday loans are short-term and usually have much larger fees than other loans. You should consider if you can pay it back on time, what other choices you may have, how much will it cost, and how safe your personal information is online.

If you are considering an online payday loan, here are some questions to ask yourself:

  • What is the total cost of the loanand can I afford it? They generally have large fees or interest rates and drain your cash in a short period of time.
  • How will I repay the loan or make my payments? Online lenders may not take a check and may ask you to authorize automatic electronic payment s from your banking account.
  • What happens if I can’t repay the loan? Not being able to make your loan payments on time can result in significant fees. Your lender may offer a repayment extension, which may come with additional fees.
  • Is the website an actual lender or a lead-generator site? Lead generators take your information and send it to a network of possible lenders. Lead generators might not find you the cheapest loans, and you should be cautious of sites that promise they will.
  • Is the lender’s contact information – street address, phone number, and email address – easy to find on the website or loan application in case there is a problem later? It’s sometimes difficult for borrowers to identify and contact online lenders, especially if the borrower needs to revoke the electronic account access.
  • Is this lender licensed in my state? You may have more consumer protections if the lender is required to be licensed in your state.
  • Will the online lender or website protect my Social Security number, checking account number and other personal information? What are the privacy and opt-out policies? Can you restrict the site from selling your personal information?
  • Will the online lender pull my credit report? Some online payday lenders will pull a credit report or seek other information from credit reporting companies before giving you a loan. They may want to confirm your identity or see if you have declared bankruptcy.

Any time you give out your sensitive personal and financial information on the internet there are risks. If you apply for payday loans online, you could be increasing that risk. Many websites advertising payday loans are not actual lenders, but businesses known as “lead generators,” which make money primarily by finding customers for lenders.

Lead generators will collect your information – including your Social Security and checking account numbers – and then send your request to a network of payday lenders. Your application will then be sold to the lender that offers to make you a loan. However, that may not stop other lenders or service providers from calling or emailing you.

It can be hard to tell if the website you clicked on is a lead generator or an actual lender. Lead-generator sites, however, often use certain phrases, including “matching you with lenders” or “connecting you with a network of participating lenders”.

If you experience an issue with a payday loan, you can submit a complaint to the CFPB online or by calling (855) 411-2372. You also may be able to get more information, as well as submit a complaint, from your state regulator or state attorney general.

How can I tell if a payday lender is licensed to do business in my state?

If you want to know whether a payday lender is licensed to do business in your state, verify the information with your state regulator or attorney general.

Not all states allow payday lending. Some states allow payday lending and require lenders to be licensed. In some states, if a payday loan is made by a business that is not licensed in that state, the payday loan may be void. In that circumstance, the lender may not have the right to collect or require the consumer to repay the payday loan.

What is a payday loan?

While there is no set definition of a payday loan, it is usually a short-term, high-cost loan, generally for $500 or less, that is typically due on your next payday. Depending on your state law, payday loans could be available through storefront payday lenders or online.

Money from the loan can be given in cash, by check, through an electronic deposit, or on a prepaid card. Most payday loans share a few common features.

  • Relatively small amounts. The loans are for small amounts, and many states set a limit on payday loan size. A common loan limit is $500, although limits range above and below this amount.
  • Relatively short loan terms. A payday loan is usually repaid in a single payment on the borrower’s next payday, or when income is received from another source, such as a pension or Social Security. The due date is typically two to four weeks from the date the loan was made. The specific due date is set in the payday loan agreement.
  • Authorization for automatic repayment. To repay the loan, you generally write a post-dated check for the full balance, including fees. Or, you give the lender authorization to electronically debit the funds from your bank, credit union, or prepaid card account. If you don’t repay the loan on or before the due date, the lender can cash the check or electronically withdraw money from your account.
  • No credit check or financial check. Payday lenders do not generally verify your ability to repay the loan while meeting your other financial obligations.
  • Payment terms can vary. Payday loans are often structured to be paid off in one lump-sum payment. Some state laws permit lenders to “rollover” or “renew” a loan when it becomes due so that you pay only the fees, and the lender extends the due date of the loan. Some payday loans are set up to be repaid in installments over a longer period of time.

How much does a payday loan cost?

Many state laws set a maximum amount for payday loan fees, ranging from $10 to $30 for every $100 borrowed. A typical two-week payday loan with a $15 per $100 fee equates to an annual percentage rate (APR) of almost 400 percent. By comparison, APRs on credit cards can range from about 12 percent to about 30 percent. In many states that permit payday lending, the cost of the loan, fees and the maximum loan amount are capped.

Is my state allowed to ban payday loans?

Some states do not have payday lending because the loans are not permitted by the state’s law or because payday lenders have decided not to do business at the interest rate and fees permitted in those states. In states that do allow or regulate payday lending, you can find more information from your state regulator or state attorney general.

Protections for servicemembers

Active duty servicemembers and their dependents have protections on loans through the federal Military Lending Act (MLA). The protections include a cap of 36 percent on the Military Annual Percentage Rate (MAPR), as well as other limitations on what lenders can charge for payday and other consumer loans. Contact your local Judge Advocate General’s (JAG) office to learn more about lending restrictions. You can use the JAG Legal Assistance Office locator to find help.

Sources and publication details

The federal agency source text is U.S. government work in the public domain. Fynoptic selected, adapted, and formatted it for this guide. No agency endorsement is implied. Follow the linked sources for current program details and the rules applicable to your circumstances.

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