Payday loan companies offer customers the option of deferred deposit, or post dated check advance. This concept is based on the fact that many individuals are unable to fulfill their financial obligations between pay checks. In other words, the payday loan fronts the money that the client will be receiving in their next pay check. After the check comes in, the client owes the payday loan company that amount plus interest and fees depending on the company.



In order to receive a payday loan the applicant must go through an approval process. This process varies across different companies, but may include a background and credit check or the like. When an applicant is approved to receive a loan, the requested money will be transferred into the applicant's account. At this time the loan company will also debit the applicant's account for the applicable finance charges and other fees depending on the initial agreement.

In order to be officially approved for a payday loan, an applicant must have a legitimate income and valid proof of that income. A thorough credit check is often performed in order to predict repayment, but a poor credit history does not necessarily disqualify the applicant. There is often no collateral required to obtain a payday loan, but the applicant must authorize a demand draft from their checking account. The demand draft serves in place of a personal check from the applicant.

After final loan approval, the requested funds will then be transferred into the recipient's checking account within one business day. In certain cases, fund transfer may be expedited to same day delivery, but this option varies from place to place. Once the funds are disbursed, the recipient is responsible for repaying the payday loan company. If the loan recipient thinks that their check will not clear, they must notify the company immediately to make special payment arrangements.

Only one payday loan can exist at any given time. Therefore, a loan recipient may not apply for another loan until their existing loan is paid in full. Depending on the company, a loan increase may be possible if additional funds are needed. If a loan recipient does not repay the loan, legal action is fully warranted.

It is part of the legal agreement that the recipient will repay the loan in full by a specified time line, and if the recipient fails to comply they are subject to penalty. Once all attempts at repayment fail, the case will be turned over to collections, which reflect quite poorly on credit status. For this reason, an applicant must be sure when obtaining a payday loan as negligence can cause many damaging circumstances.