No, you do not have to turn in collateral to obtain a payday loan. Payday loans are mostly unsecured and can be taken out by virtually any resident of the state who meets the lender’s lending requirements and can present proof that they can afford the loan.
By unsecured, we mean you do not have to give collateral or borrow against an item of value as you do at a pawn shop. But you have to agree to a payment option with the payday lender. The usual ones are providing a post-dated check the lender can cash on deadline day or giving them electronic access to your bank account, prepaid card account or credit union.
Typically, the bank or credit union charges you a fee for bounced checks or overdrawing your account if you do not have enough money in your account at the time the lender tries to recover their payday loan.
Depending on your state’s lending laws and the contents of your loan agreement, they may also charge you an additional fee for a failed transaction (non-sufficient funds).
According to the Consumer Financial Protection Bureau (CFPB), federal law states that lenders should never require borrowers to repay their loans via pre-authorized Automated Clearing House (ACH) payments before granting their loans.
Problems associated with electronic authorization can be reported to the state’s attorney general or state regulator. Otherwise, you can submit a complaint online to the CFPB or call (855) 411-2372.