How Do Payday Loans Work? - All You Need To Know About Payday Loans and Payday Lenders

11:52 AM, Jul 29, 2022

Payday loan services like MoneyMutual are a nice buffer when we’re strapped for cash, and our next paycheck is a good few days away.

The idea might seem simple; going to a lender for a short-term loan.

Still, many consumers don’t have enough knowledge of the payday loan industry and might end up making grave credit mistakes.

And that’s what we’re here to solve - by looking at the ins and outs of payday loans and online payday lenders.

In no time, you’ll have a good grasp of payday credit and make intelligent future payday loan choices.

What Is a Payday Loan?

A payday loan is simply defined as a short-term high-interest loan that is usually due on your next payday (30 days or less).

Typically, payday loans are meant to be serviced with your next paycheck.

These loans can be accessed through brick-and-mortar creditors or online lenders like MoneyMutual depending on your state laws.

The main characteristics of payday loans are;

  • Short-term loans of high-interest
  • Small loans are usually of $1000 and below. (Some payday lenders may give more)
  • Repaid on your next payday
  • Granted based on your income
  • Generally controlled by state laws

How Do Payday Loans Work?

Payday loans work by advancing high-interest credit to payday borrowers based on their income.

Consumers simply approach a payday lender like MoneyMutual, and issue a loan request, upon which the lender reviews and decides whether to give them a loan.

For conventional payday lenders, a borrower will submit proof of income then the lender can give them credit worth part of their paycheck.

Since payday loans need less to no credit check, payday lenders charge high APRs and sometimes high fees, e.g. origination fees.

Online payday loans however take a slightly different approach.

A consumer will access a lender’s website and fill out an online form for a payday loan. On approval, the moneylender will offer a loan that the borrower can review and choose to accept.

It should be noted that online lenders are more flexible than traditional payday lenders and hence may provide more credit.

For a Quick Loan, Check Out MoneyMutual

How Much Can I Borrow With a Payday Loan?


Commonly, as the name suggests, a payday loan sum can be equivalent to or a part of your monthly paycheck.

For example;

With a storefront payday lender, if you earn $2,000 a month after taxes, you get a payday loan worth that amount or less.

Still, with the rise of payday lending companies, more people can borrow more amounts.


More online payday lenders attempt to redefine payday loans by offering monthly payment plans.

By taking a short-term installment loan, a borrower can get more credit and spread the principal interest over a few months.

How Do I Repay a Payday Loan?

Different payday lenders may have different modes of repayments.

For many payday lenders, you’ll be required to grant authorization for them to electronically withdraw money from your bank account.

This may be by offering a post-dated check, which the lender will cash in when the loan matures.

Alternatively, you can repay payday loans by;

  • Write the lender a check on your payday
  • Take a new form of credit to offset the loan

Get a Loan With MoneyMutual Today

What Are Some Things to Watch Out for With Payday Loans?

Undeniably, payday loans are life savers when you’re short on cash or met with unexpected bills and expenses. 

Even so, here are some things to look out for to ensure you have a pleasant payday loan experience.

Company Reputation

Most payday lenders are honest and trustworthy. 

Nevertheless, you can never be too careful. Do your due diligence and poke around a loan company’s background and user reviews to gauge its reputation.

NOTE: Further below are a few reputable payday lending companies you might consider.

High APRs

Payday loans typically have a high annual percentage rate of around 400%. Still, some lenders may impose higher payday loan interest rates to cover their risk.

A case in point is the issue of tribal lenders.

Tribal lenders aren’t necessarily affected by state interest caps and therefore may charge more.

Before finalizing a deal with a payday loan provider, carefully assess your total payday loan cost before making a decision.

Late Payment Cost

Again, some creditors may impose a penalty fee for late payments, and this may raise the principal interest to be paid back.

Additionally, some lenders may also report loan defaults to the major credit bureaus - which - may further hurt your credit score and creditworthiness. 

You want to read your lender’s fine prints and see what fees and penalties they list for dishonored repayment terms.

Are There Options To Help Pay Off My Payday Loan?

Unfortunately, as a borrower, you can be trapped with an unsustainable payday loan. 

If you find yourself in this pickle, a few possible courses of action to repay the loan;

Consider a Payday Loan Debt Consolidation Program

You can take a debt consolidation loan or approach a debt relief program to help you combine multiple loans into one.

A debt consolidation loan mainly helps you refrain from taking more pricey credit to pay off existing payday loans.

By combining high-interest loans, you are able to lower your rates and at times restructure your repayments to manageable installment plans.

Seek a Debt Payment Plan

A debt repayment plan is when you ask your creditor to review your loan agreement and extend your loan term.

Some state laws allow consumers to seek debt repayment options, nevertheless, you might incur an additional fee for that.

Explore Debt Settlement or File for Bankruptcy

On the other hand, you could also opt for debt settlement with your creditor.

Debt settlement involves requesting your creditor to let you place a one-off debt payment that’s less than what you owe. 

Still, note that debt settlement might lower your credit score. Also, lenders might only consider you for settlement if it's clear that you’re struggling to repay the loan.

As a final resort, you may file for bankruptcy if you’ve exhausted all options and are immersed in large debt.

What Are Alternative Options to a Payday Loan?


While payday loans are widely easy to get, they are not always the best choice if you have other high-cost existing loans.

Other payday loan alternatives to explore include:

Bad Credit Loans

For people with unfavorable credit, bad credit loan companies issue unsecured personal loans at better rates and longer loan terms.

What’s more, bad credit loans from a company like BadCreditLoans, are good for emergency cash as borrowers mostly receive cash to their bank account within a business day.

Peer-to-Peer Loans

Even better, you can borrow money from peer-to-peer lenders.

Peer-to-peer loans are made up of a pool of investors open to funding you without the rigid structure of a formal financial organization.

These loans are majorly accessed online where you send in a loan request and possibly assess multiple loan offers.

Peer-to-peer loans are great because they allow you to shop for a lower interest rate. Besides, peer-to-peer rates are generally much lower than payday loans.

Credit Unions and Payday Alternative Loans (PAL)

If you’re part of a credit union, chances are your credit union might be offering Payday Alternative Loans.

Credit unions that are members of the National Credit Union Administration issue payday alternative loans with terms of as long as 12 months. 

In turn, the long loan terms also lower your interest rate.

Credit Card Loans

You can also ask your credit card provider to provide you with a loan if you have an open credit card.

Credit card loans are given against your credit limit at relatively lower interest rates and more flexible loan terms.

Co-signer Loans

Co-signer loans are when you have someone with good credit standing to sign for a credit request on your behalf. 

Basically, the cosigner works as a somewhat collateral. 

With their good credit score, a co-signer enables you to take personal loans, debt consolidation loans, credit card loans, and more at a much more pleasant interest rate.

Salary Advances

Many employers can issue part of your salary in advance when you send in a request.

Salary advances are repaid from either a one-time deduction of your salary or spread-out deductions from future paychecks.

How you repay paycheck advance salaries may depend on the workplace policy or what you negotiate for.

Check out MoneyMutual for a Cash Advance Loan

Borrow Money From Family and Friends

Well, many borrowers might not want to trouble family and friends. Nonetheless, family is a good option if you want a loan on less strict terms.

Don’t get us wrong, this isn’t a sign to take advantage of a family member or pal. 

When approaching someone close for credit, go with a solid plan on how to pay back the loan and stick to it.

Pawn Shop Loans

If you’re in dire need of a loan, you might take a worthy item, e.g. pricey jewelry to a pawn shop in exchange for a loan.

These items are meant to act as collateral.

A lender will afterward gauge the item’s value and decide on the loan amount and interest rates to give you.

What Companies Offer Payday Loans Online?

1. MoneyMutual - Top Payday Loans Online



  • Since 2010
  • Immense lender network
  • Over 2 million customers
  • Secure certified process
  • As low as $200 payday loans 


  • States lender rates on approval


MoneyMutual has about 12 years in the payday loan industry. And besides, it’s also a member of the Online Lender’s Alliance to illustrate its legitimacy.

You’d be impressed by the company’s massive lender network. You’d normally find about 90 lenders online at a given time, and this massively improves your credit chances. 

What’s more, MoneyMutual understands your financial urgency.

A loan request takes you approximately 5 minutes. Furthermore, a lender decision arrives in minutes too, with possible funds delivered in 24 hours.

Equally important, the online lender gives loan amounts of as little as $200, so they’re a fitting alternative if you don’t want to bother your family.

It’s also assuring that MoneyMutual is certified by TrustedSite as a secure site, so your sensitive information is safe.


  • APR: Provided on lender offer
  • Loan amount: $200 - $5,000
  • Loan terms: Provided on lender offer

MoneyMutual is described as a lender marketplace and not a direct lender. So, they don’t outrightly give their lender interest rates until you get a payday loan offer.

However, because of its huge lender network, you can review loan offers until you find personable rates.

If you receive a loan offer you don’t like, you can decline and resubmit your request to land a different creditor.

Get a Loan With MoneyMutual Today

2. CashUSA - Very Informative Online Payday Loan Lender



  • Extensive loan education resources
  • Honest loan term estimates
  • Lenders from all US states
  • Notable customer support


  • Limited user reviews


CashUSA is touted as one of the USA’s most trusted payday loan resources.

Looking at its simple requirements, fast process, and wide educational tools we can totally see why.

Mainly, it only takes minutes to put through a loan application, and you can receive your payday loan proceeds the next business day.

Again, CashUSA strives to see that you make thoughtful loan decisions by providing extensive resources on finance, debt, credit, and more.However, the company doesn’t seem to have many user reviews. Even so, their present reviews are positive and the lender’s service is generally reassuring.

In addition, CashUSA claims to have lenders from every US State, hence making it easier for borrowers across the country.


  • APR: 5.99 - 35.99%
  • Loan amount: $500 - $10,000
  • Loan terms: 90 days - 72 months

It’s quite prudent that CashUSA lists its lender APR approximates right away. This way you know what to expect.

All in all, sourcing for payday loans is quite simple. Even so, if you experience trouble, the company has reliable toll-free support to help you out.

Get Fast Cash With CashUSA

3. BadCreditLoans - Best for Bad Credit Loans



  • Has tailored loan types
  • 24/7 service
  • Has a secondary lender network
  • Good for loan comparisons


  • Tribal lenders may have higher rates


BadCreditLoans caters to the needs of the financially vulnerable - those with bad credit scores.

Again, instead of a random loan inquiry, the lender lets you seek no credit check loans based on your personalized needs.

The different loan types are;

  • Personalized loans
  • Auto loans
  • Mortgage loans
  • Home loans
  • Business loans
  • Credit card loans
  • Student loans

Along with these, BadCreditLoans works 24/7, therefore granting you a better reach to loans.

Just so you know, BadCreditLoans has tribal lenders in its network. Tribal lenders aren’t regulated by state laws and hence may demand higher rates.

On the positive side, the payday loan service has a secondary lender network that may also consider you if you aren’t lucky with its main lenders.


  • APR: 5.99 - 35.99%
  • Loan amount: $500 - $10,000
  • Loan terms: 90 days - 72 months

With multiple lenders, BadCreditLoans can simultaneously send several creditor offers, making it friendly to shop for the best available rates. 

Get a Bad Credit Loan Today

4. Funds Joy - Great Short-term and Installment Loans



  • Various types of loans
  • Loans from $200
  • Low starting interest rates
  • Both short/installment loans


  • Rates could get high

Funds Joy prides itself in its expert loan market knowledge and a line of industry-respected lenders.

Depending on your credit needs, you can choose from three customized loans;

  • Cash advance loans
  • Personal loans
  • Installment loans

On top of providing you personalized credit, you can see that the payday lender gives the flexibility of short-term and installment loans. 
Hence, you can choose the installment option if you want a more bearable repayment plan.

Better still, Funds Joy provides loans to people with bad credit scores too, hence no one is locked out.

Usually, the loan form takes only 10 minutes to complete, and if cleared your funds will be in your bank account the next day.


  • APR: 4.99 - 1386%
  • Loan amount: $200 - $5,000
  • Loan terms: Given on lender's offer

As seen, Funds Joy gives a low starting interest rate at a nice 4.99%. However, their payday loan varieties attract different rates, so keep that in mind.

Loans From $200 With Funds Joy

5. PersonalLoans - Great for a Big Personal Loan



  • Loans of up to $35,000
  • Credit for any purpose
  • Transparent rates
  • Extensive loan guides


  • Minimum $2,000 income requirement


Faced with a big financial expense?

PersonalLoans grants loans of up to $35,000, which is the highest personal loan amount here.

Moreover, the personal loan lender gives loans for all purposes, so you don’t have to hesitate when sending a loan request.

To boost your loan odds, PersonalLoans additionally has a third-party lender network that may look at your loan inquiry details.

Only, the payday lender has a $2,000 and $3,000 minimum income requirements, which are higher than what many other creditors need.

More on flexibility, you have the freedom to choose between;

  • Peer-to-peer loans
  • Bank personal loans
  • Personal installment loans


  • APR: 5.99 - 35.99%
  • Loan amount: $1,000 - $35,000
  • Loan terms: 3 - 72 months

Wrapping up, it’s helpful that PersonalLoans gives its general creditor loan term details. With the company’s lender term estimates, lender loan deals find you prepared.

Get a Personal Loan Today

How Do Payday Loans Work - Conclusion

It’s amazing that you stuck with us through this payday loan guide, and we hope you had fun while at it.

Now, you’re armored with extensive payday lending market knowledge to browse through payday loans and choose a fitting option for yourself.

Besides, we also listed our top recommended bad credit loans like MoneyMutual,  today to start you off.

Note:  remember to take payday loans that you can afford to avoid a debt trap.


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