Can You Get a Payday Loan Without a Bank Account?

Inside Subprime: Feb 4, 2019

By Grace Austin

Payday loans and title loans are small-dollar, high-interest loans offered for very short terms and marketed to those who are cash-strapped and often don’t have access to traditional banking opportunities.

Most financial institutions, like banks and credit unions, require that borrowers have a decent credit score and a bank account before they’ll be approved for a loan. But while some payday and title lenders require that you do have a checking or bank account, others do not. That leads many “unbanked” Americans without checking accounts, a number now estimated as high as 17 million people (often due to the high costs of traditional banking through overdraft fees and even proximity to banking locations) to seek payday or title loans in the absence of other options.

For payday and title lenders, a checking account is often the best way to prove a borrower has some financial footprint, and in good standing, without running a credit check. Essentially, a customer without a checking account means a riskier borrower. A checking account has an additional use for those lenders, too—a way to transfer money and debit repayment funds, and oftentimes, additional fees if payments are late. If a borrower were to default on their loan, the lender would continue to draft fees until there was nothing left in the checking account.

For those payday and title lenders that don’t require a checking account, it’s often part of the outgoing marketing strategy to customers. Although it doesn’t require a checking account, the online payday lender indicates additional criteria for a loan, such as being an American citizen, an ID, an email account, and proof of income. Loans that don’t require a checking account are typically more costly for borrowers—these loans come with higher fees, since the borrower is considered a riskier return on investment.

Those lenders that don’t require a bank account will either give a borrower cash directly or hand out a prepaid debit card.

Title lenders and other alternative lending sources do not always require a checking account because the borrower is giving up something in collateral. For pawn shops, that’s an item. For a title lender, that’s a vehicle. One title loan firm markets itself as a “nationally-recognized source of no bank account loans.” The title lender advertises that borrowers only need a driver’s license and a lien-free car; but there’s still the threat that the car could be repossessed if the loan is not paid. Research shows it’s more likely a borrower will end up paying more in interest than the loan is worth.

As more Americans go unbanked, and face the uncertainties of living paycheck to paycheck, it’s almost certain they’ll opt into riskier payday and title loans that don’t even require a checking account — meaning potentially greater fees and interest and a greater chance of becoming trapped in debt.

For more information on payday loans, scams, and cash advances and check out our city and state financial guides including FloridaIndiana, Illinois, KansasKentucky, MissouriOhio, Texas and more.

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