It is now possible to obtain payday loans online, but the requirements are basically the same as those for obtaining payday loans from storefront or office lenders. The same documents that need to be presented to a physical lender must be presented to the online lender, and rules as well as amounts of loans available are also basically the same.

Most online payday lenders are reputable and operate according to the laws of the states in which they offer payday loans. A reliable payday loan site will include clear disclosure of the terms of the loan, including the amount of interest and other charges that are due when the loan is repaid, as well as any finance charges, penalties or other additional costs that a borrower may be required to pay in the event of delinquency.

The Application, Funding and Repayment Process

Usually, the process of obtaining a payday loan online begins with filling out a basic form that asks the borrower for his bank account number and routing number, as well as his social security number and account details. Some lenders may ask applicants to fax additional documents, such as copies of checks or bank statements, in order to confirm that the applicant is indeed able to repay the loan. However, more and more online lenders are relying on technological advances such as online signatures and confirmation of direct deposit agreements with employers, to do away with the need for faxing documents.

Needless to say, an online payday loan is only possible for borrowers who have set up electronic banking with their banks or credit unions. The funds are transferred electronically to the borrower's account, and the same account is then automatically debited at the end of the loan period. Since the debit includes all fees and interest payments, the borrower's account must have sufficient funds in it to cover the entire repayment. Otherwise, penalties will be charged for what amounts to automatic roll-over of the original loan.

Availability and Legal Regulations

Payday loans online are theoretically only available to residents of states which allow for regular payday loans. It should not possible to use an online service to obtain a payday loan in a state where such loans have been banned. At present these states include Vermont, Maryland, West Virginia and Georgia as well as nine others.

A properly run online loan site will simply not allow applications from these states, either by blocking IP addresses or by not including them in the typical pull-down menu of states that is included on its loan application. Alternately, a site may allow applications but will then automatically reject them if they come from states where payday loans are banned.

However, some payday lenders do offer loans to applicants in states where regular payday loans are banned, and they hope that they will avoid prosecution or being shut down due to the bureaucratic loopholes involved in dealing with lenders which actually do not operate in the states where they offer the loans. Using a service that offers loans in circumvention of the law carries risks, as such loans are also not governed by usury laws or other state regulations that protect legal borrowers.

When to Use an Online Payday Loan

An online payday loan is an emergency cash advance that is very costly when used on anything but a very occasional basis. It should be used only when a small amount of cash is needed immediately, and only when the borrower is certain it can be repaid on time. Examples include sudden medical, auto or home repair bills, or a family emergency. Using payday loans, online or traditional, to purchase luxuries or pay for entertainment is very unwise, as the cost of such loans is very high and the penalties for late repayment are very steep.

Like storefront lenders, online payday lenders benefit quite greatly from late fees and other penalties that are assessed against delinquent borrowers. Payday lenders are able to attach assets and use other legal means to recoup the entire amount of the loan including penalties should the borrower remain delinquent over a long period of time.

In general, an online payday loan is safer and more convenient than a loan which is obtained from a storefront lender, but because it is more difficult to verify information, it may be more difficult for some borrowers to obtain their payday loans online. When choosing an online payday lender, check to make sure that the site it operates lists all fees clearly and concisely, and that it operates according to the laws which govern payday lending in the state where the cash is being obtained.

Even if an online payday lender offers loans in a state where regular payday loans are illegal, such loans should be avoided unless absolutely necessary. However, a legitimate online payday lender is often the best, most convenient and most reliable source for cash in an absolute emergency.