Payday Lending Process

How Payday Loans Actually Work

  • Step 1: A borrower writes a personal check from their personal bank account for the amount of their next pay check, as well as the financing charges that the lender is charging for the loan.
  • Step 2: The lender provides the borrower with the cash value of the borrower’s next pay check, and holds onto the personal check for the period of the agreement.
  • Step 3: When the borrower’s pay check comes into their bank account, the lender will cash the personal check for the cost of the borrowed funds, as well as the financing fee charged to the loan.
  • Step 4: If the borrower took out a loan for the full value of their pay check, and they do not have alternative means of paying back the full amount of the debt, they will need to secure another payday loan to prevent the personal check from bouncing. This is known as ‘refinancing’.
  • Step 5: If the personal check does bounce, the payday loan becomes delinquent, and begins accumulating interest.

Parties Involved in the Payday Lending Process

  • Borrower: The person who writes the personal check, secured against their next pay check.
  • Borrower’s Bank: The financial institution that holds the borrower’s accounts. This is the institution that provides the borrower with personal check, receives the borrower’s pay check, and forwards the funds to the payday lender upon their cashing of the personal check.
  • Payday Lender: A small lending body that operates outside of traditional lending rules, and within their own legislative framework.
  • Affiliate: See information below.

Payday Loan Affiliate Websites

If a consumer applies for a payday loan online there is a very good chance they are applying through an affiliate website unless they apply directly at one of the six major payday lenders.

Websites running payday loan affiliate programs are paid a commission for each “qualified” lead they produce. The commission paid to the affiliate ranges from $2.00 – $130.00 dollars per qualified lead.

A qualified lead is someone who completes an application on the affiliate website and meets the payday lenders requirements. The requirements are typically someone who does not have any outstanding payday loans, currently has a job with a monthly income of at least $1,000.00 dollars and has a predetermined minimum credit score.

The image below represents the payday loan application process when a consumer applies through an affiliate website.

Below are the three most popular payday loan affiliate programs: